The ability and readiness to develop, organize and run start-ups might sound like an easy task. But, in reality, it is completely the opposite. Starting a business with all the planning and organizing is one thing. But, keeping the business financially afloat is something in which many new and young entrepreneurs often fail.
Every day is a busy day during the initial days of every business. You try to find your way into achieving the goals and grow your company and build your product/services. However, the biggest and most important task in every business is managing funds. And, it all might get overwhelming unless you have the correct knowledge in how to carry out the financials. Therefore, it can very soon become the reason for the distress or failure of your start-up. So, let us look into the most common financial mistakes that new start-ups commit and how to prevent them.
Cash Burn and Cash Flow
Every business needs a certain amount of capital every month to keep the business running, known as cash burn. Therefore, one must have a proper understanding of the burn rate. As it tends to differ from business to business. So, if you do not calculate the correct burn rate or miscalculate it, it will impact your business negatively. Also, the chances are high that you might not even achieve your goal/milestone before the money runs out.
Therefore, keeping track of all your expenses will help you calculate the correct burn rate, and manage the cash flow. Going for a more realistic approach and a less inspirational one will help in calculating the correct fund that the business will need to keep going.
The first step to start any start-up is to survey and study the market. Like, how many other companies sell the same product/services as you do or the existing cost of the same in the market. Study the type of customers already there and how can you make your product innovative and attract more customers. Studying the marketplace prices and your competition and customers and also the current trend will give the start-ups a boost.
Expanding Too Quickly
Most start-ups tend to make the mistake of expanding too quickly. What they do not realize is that expanding business means more funds. As you think about expanding your business, you will need more people to work. And, more people means a bigger workspace and more salaries to give. What one does not realize is that more employees call for a huge drain of funds. Therefore, expand slowly as you grow.
Apart from hiring only sufficient employees, it is important to hire people of caliber. Hiring people who just need experience or exposure might turn bad for you. As the work efficiency of the employee who has the correct knowledge of the work will give out better result than the one without proper knowledge. Therefore, the work will not complete in time and you will have to face the consequences of the clients.
Doing Finances Without Training
Well, as the article suggests earlier, hiring less and expanding slowly is the better choice for every start-up. But, hiring the necessary people even if you think you might not need them is necessary. Therefore, if you do not possess much knowledge about maintaining finances, and you still go for managing it on your own, it might hinder your business finance. So, you must hire a CFO (chief financial officer) for your business. If not CFO, one must have some financial support for maintaining day-to-day accounts and book-keeping.
Therefore, every business involves high risk but, at the same time, if planned and carried out in an organized way it gives out a high profit. Spend the money wisely and invest the profits safely. However, the success of any start-up does not depend on just one or two people, it calls for more of a team effort. Business is not a one-man-show. Moreover, one cannot say that you can become successful without making mistakes or failing. But, there are always some aspects that you can research and avoid getting into.