Entrepreneurs are known to be excellent problem-solvers who push their boundaries and sail towards unchartered waters. They often have a skewed perception that opportunity equates to risk. It is this willingness to take the risk that makes them more prone to making mistakes.
Having said that, mistakes are a crucial part of an entrepreneur’s journey. But some mistakes can cost dearly. Especially the ones concerning the money. Money mistakes are easily the biggest reason why the majority of the start-ups fails in their first few years of operation.
Money mistakes can bring even the most promising business to its knees. So, avoid these common money mistakes most business owners make:
1. Sloppy Cash Flow Management
Most businesses fail because of capital misuse. The amount of cash moving in and out of your business has to be managed extremely well. If you are financially savvy, this skill is an advantage when running your business. But, if you are sloppy with accounting and cash management, you may need to pay extra attention to what’s going on with your finances.
Track your income and your expenses. Set up a system (an excel sheet) to monitor the inflow and outflow. Make sure you track and report every single invoice and payment as your business grows.
2. Not Saving for Emergencies
The best financial experts always advice to keep an ample stash of cash for emergency expenses. There will be times in your business journey when you’ll need ready cash to cover an emergency expense. Using a credit card is a short-sighted solution. Keeping a contingency fund or personal line of credit for both personal and business expenses is the best way to be prepared for an emergency situation.
3. Raising Capital Too Early
Getting investors to fund to business often comes at a cost. Firstly, you are likely to lose control, and secondly, you are under a lot of pressure from your investors.
Bootstrap your startup as long as you can. Try to find co-founders, get a low-interest personal loan for business, if need be.
4. Saying Yes to All the Projects
It’s tempting to take up any projects that come your way because it’s money coming your way. But some projects can lead to burnout and are not worth the money. It’s important in business to be clear of what type of projects and clients you want to work with. That will decide what reputation you’ll be building in the market. Pick up projects and clients that are actually going to help you in the long run. Good relationships with your clients can not only help with your reputation but can lead to referrals and eventually bigger projects.
5. Hiring the Wrong People
Hiring weak team members can drain your finances and weaken your business. Don’t be tempted to hire low-cost employees. If you fall into this trap, you’ll end up losing more than you had bargained for. It’s not only the salary you’ll be paying your new employees, but you’ll also be investing in training, recruitment and other related expenses. When the investment is so large and critical to your business, hire employees that are aligned with your company’s values and goals.