8 Financial Mistakes to Avoid in the Early Stages of a Startup
Finances are one of the most frightening parts of launching a startup. From finding funding to hiring employees, there’s a lot to figure out. While much of your startup’s financial decisions will depend on your situation, there are a number of general mistakes you’ll want to avoid.
Getting the education is the first step towards understanding and owning your startup’s finances. While browsing these financial mistakes, think about what works for your business model and vision for where you want your company to go. It’s possible you’ve already made one of these mistakes. Failure is a completely expected part of the journey. Upcoming entrepreneurs in tech will want to be wary of these easy financial mistakes.
You can’t confidently put a budget, forecast, or report together without being sure of the numbers, yet many entrepreneurs fall prey to this mistake. Cutting corners and not getting an accurate budget can lead to a lot of problems in the end.
Entrepreneurs may be best served by taking the time to find exact costs. Even if it takes cold calling manufacturers and suppliers to get accurate answers, it will be well worth it in the end. Investors will be happy with more accurate annual plans and you’ll be confident as you kick things off.
2. Not Investing in the Right Attorneys and Accountants
Getting the right person for the job is always important, but it’s critical when it comes to attorneys and accountants. Accepting that you’re not an expert in these areas is the easy part. The next step of actually hiring someone to help you can be more difficult because of the investment required, but just remind yourself that finances and legal issues are two areas where you don’t want to mess up.
If your startup is in a highly regulated industry, you’ll thank yourself later for working with a quality attorney. Accountants can act as mentors and help you understand where your finances are at and when it’s time to find funding. These are two areas that you’ll want to get down perfectly for the stability of your startup.
3. Keeping Business and Personal Finances Together
Your own finances are just as important as your startup’s. How will you keep your startup going if you can’t provide for yourself? Things can’t get confusing when you’re bootstrapping your startup and your finances are so mixed you can hardly tell what’s business and what’s personal.
Separating these accounts can also protect you from financial issues if you have the right business type. For your own sanity and that of your future accountant’s creating business accounts is a necessity.
4. High Fixed Costs
The time to spurge is not at the beginning on your launch, so you might think twice about getting those Mac computers for the whole office. Salman Khoja, Head of Finance at Virtuzone, shared that casually adding fixed costs is one of the most common financial mistakes startups make.
Founders should make sure they know the difference between the must haves and the nice to haves to avoid putting themselves in a difficult position.
Among these fixed costs is office space rental. You’ll have to be the judge of what your company can afford, but it’s often beneficial to get creative when it comes to office space. While the garage might not be your first choice, you’ll look back on it with relief when it comes to your finances. Working in a non-traditional space doesn’t make you any less of an entrepreneur.
5. Relying Solely On Your Accountant
It’s likely your accountant won’t be there for every purchasing decision you make. While accountants are very beneficial, they shouldn’t be the only ones with an eye on your finances. You should be an expert on your personal and business finances besides where complicated taxes come into play.
Knowing how much you can afford and what you have to work with is key. Keeping an eye on things is as easy as using Mint. You’ll catch random expenses and work your finances with intelligence.
6. Counting On Future Sales
There comes a point when being optimistic serves as a detriment to your business. Acquiring debt and counting on future sales to pay it off can be very dangerous.
If acquiring debt seems like it’s the only way, there are several things entrepreneurs might do to make their future sales more concrete. Getting in touch with potential customers and judging their purchasing desire and ability can give you a better idea of what to expect. Creating a waiting list and having customers pay now could even take away the need for debt.
Working with debt is a time to be extremely cautious and not act on uncertainty.
7. Hiring Thoughtlessly
Hiring too quickly or hiring the wrong people can start out your business on the wrong foot. What entrepreneurs often don’t realize are the extra costs of employees. From health insurance to time spent training, it’s worth it to think through the hiring decision.
Taking your time to find the right person for the job will make things easier in the long run. Your startup deserves employees who will care for it like you do.
8. Not Knowing Your Market
Making decisions about price points, marketing, and strategy all begins with your market. If you’re launching a startup in a market that you aren’t familiar with, you’ll want to do as much research as you can to completely understand what the environment is like.
Setting the right price for your product is crucial to its success. Often, the best way to get to know the financial aspects of your market is to speak to customers directly.
With the right preparation, your startup can grow to be financially healthy. Avoiding impulsive decisions and doing your research are among the most important things to do.
Do you have financial questions?
What financial questions have you run into while launching a startup? Let us know in the comments below and you just might find someone who relates.