When you are an entrepreneur running your own start-up company, you are busy working each day (and sometimes night) to grow it up and achieve your goals. When you have your hands full with these responsibilities, it’s quite difficult to stay on top of your day-to-day accounting and finance responsibilities, and sometimes your key financial decisions can be ignored, or you can make bad financial mistakes.
It is essential that as a start-up entrepreneur that you understand the importance of accurate finances, both for your company’s stability and survival, as well as so you can secure investment in the future and have access to key credit lines.
Unfortunately, there are many financial mistakes which start-ups can make, especially in the first few months of operation, and these can be very costly. After all, one major financial mistake can be the difference between surviving and going bankrupt.
Here are some of the most common financial mistakes made by start-up entrepreneurs and how you can avoid them.
Mistake #1: Not Understanding Your Market
If you don’t fully understand your market, then how can you price your products and services, and compete with other companies? Creating a price point for your products and services involves more than just accounting for the profit margin you want – it involves considering your position within your market and what value you are bringing to the table. If you don’t understand your market then you will find it difficult to grow and may find that you aren’t earning enough money, or are spending money in the wrong places.
To avoid this, think about who your customers are, who your competition is, what makes you unique and what trends or factors can have an impact on the market you’re in.
Mistake #2: Not Using Business Management Tools and Services
There are lots of software solutions and apps on the market which can reduce some of your workloads, especially in terms of your finances. Financial management apps such as accounting software and invoicing apps can help save you money by looking after your company’s finances at a basic-level, meaning you don’t have to spend money on expensive accountants and finance professionals when you don’t need to.
Think about which tools you may be able to benefit from and then subscribe to a reputable provider which offers everything you need.
Mistake #3: Spending Too Much
When you have launched your start-up and you move into your office space, it is an exciting time and it’s far too easy to let your hair down and start spending money on fancy pieces of equipment, cool furniture, and edgy decorative pieces. Don’t do this. As a start-up, you need to put your money into what’s important: growing your company. Buy only what you need to function at a basic level and save the fancy stuff for the future.
Consider what equipment you need and stick to it. Do you really need 5 $2,000 computers, or will a couple of mid-range and fairly priced ones do the same job?
Mistake #4: Not Hiring the Right People
There will come a time when you need to bring in full-time hired help so that your company can continue to grow. There are many costs associated with hiring people – e.g. training and background checks – so it is important that you hire the right people first time round. The worst thing you could do is hire somebody and discover that they’re not quite who they said they were, or that they are performing poorly and are harming your company.
During the hiring process, perform due diligence and perform extensive checks on each employee you are hiring. Check their references, ensure that they attended the college they said they did and got the grades they claimed. Have a look at their social media. All these things can provide an insight into who you are hiring.
Avoiding Financial Catastrophe
As we said, it’s very easy to make catastrophic financial mistakes during the very early days of your start-up. When you are a one-man-band or are running the show with a couple of friends, financial considerations may be the last thing on your mind. This shouldn’t be the case and it is important you know what to watch out for, and are using the right solutions which will make your life easier.