Starting a business is rarely a risk-free venture, so it pays to be smart with your money. But when it comes to managing finances, many founders come up short. Sure, they might be experts in their particular field, but running a business is more than delivering your product well. It is also about doing business well too, part of which is keeping an eagle eye on finances.
Here are some financial mistakes that entrepreneurs need to avoid.
Focusing On Fundraising And Not Revenue Generation
Startups rely on fundraising to get their projects off the ground. But after a while, fundraising can dry up, and startups can find themselves in financial trouble. Because it is what they know, many founders just go back to their investors and ask for more money. But this isn’t always the best strategy. A better approach is to reduce your reliance on outside money as fast as possible by building up your own capacity to generate revenue. Once you’ve got a great product, your business suddenly becomes self-sustaining. Who knows, this might even be a reason why you get more funding later on.
Failing To Pay Yourself Enough
Nobody goes into business to earn a $15,000 a year. But some entrepreneurs find themselves in this position anyway because they neglect their own needs to look after their company. Often the people they hire end up taking home more money than they do.
When it comes to running a company, sound personal finances are just as important as sound business finances. You need to be sure that you can live comfortably enough to be able to focus entirely on the long term success of your business. The last thing you want is for your personal financial situation to be draining your energy.
Not Accounting For Cash Flow Fluctuations
Many businesses think that because they’re profitable, they’re viable. But this isn’t the case. When it comes to survival, the timing of payments to your business is just as important as the difference between how much you make and how much you spend.
You can get around this problem in the immediate term by approaching a bank that provides a courtesy pay service. These banks will cover any extra spending you make in a given month, even if there aren’t sufficient funds in your current account. Using these services is often much cheaper than paying overdraft charges, or not being able to pay workers and suppliers at all.
Hiring People On A Whim
Entrepreneurs want to expand their business empires as quickly as possible, and that means getting new people on board so they can delegate tasks. But the process of hiring isn’t as simple as many imagine. Investing in the wrong people can set your business back and prevent you from achieving your goals. To get great people, you need to pay great wages. And that can mean spending more than the minimum to get what you want. Don’t hire people just because they’re cheap. All you need them to do is prove that they’re worth more to you than their wage. Once that’s settled, it’s a win-win.
I hope you enjoyed this article about common but crucial areas that lean entrepreneurs need to keep in mind when managing their frugal finances.
Interested in more articles about frugal finance?
Read My Posts:
- How To Grow Your Business Debt Free
- How To Legally Secure Your Startup
Published by Michael J Schiemer
Owner of Bootstrap Business
Money - Marketing - Motivation
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