One of the biggest issues startups are faced with is financing, as small businesses are made to rise quickly and cheaply. While making a huge profit out of something you invested little to no money into sounds impossible, it can be done; but you have a very small margin for error. Of course, knowing what the most common financial errors that startups tend to make is the first step towards avoiding them.
Not setting clear goals
Setting clear goals is beneficial for running a business in many ways; in addition to serving as a clear guide to what a business is trying to achieve, they breathe motivation. Think of not having goals as being stranded in a desert: wandering around is pointless and useless until you see an oasis.
So, how do goals affect business finance? Well, the only thing that’s worse than not having money is not knowing what to do with it. You see, without money, but with a clear idea of what they’d do with it, a clever entrepreneur would always find a way to make it come true – with or without financing. Without goals, however, your business will be completely lost, and even if you happen to have a seven-digit financing behind you, what good would it do without a clear set of goals.
It’s important that you start broad, meaning, you start with a far-fetched, dream idea of what you’d like your business to look like within a certain time period (a year, for example). By knowing exactly what you want, you can slowly start narrowing down your dream scenario, as you gradually approach more realistic, short-term goals (tri-monthly, bi-monthly, monthly, even weekly). Having all the financing is nowhere near enough to achieve success – knowing what to do with it is the true art of entrepreneurship.
Failing to consult financial professionals
Whether they were born with it, or they’ve obtained it some other way, there are some people who are just naturally good with money. On the other hand, one thing is for certain: no one is an expert while making their baby steps in the world of business. Even if you’re the most gifted individual in this department, you can rest assured that you do not possess enough experience for this endeavor.
As a rule of thumb, the bigger the city you are operating in, the more confusing the finances get. For example, if you intended to launch your business in a big Australian city, you need to come up with awesome business plans and strategies, due to the complexity of the tax and legal system. Some of the complications stemming from that are differences in the income tests and inconsistencies in the taxation of different assets and entities. This is not easily done without consulting experts regarding tax and legal support and marketing guidance, even for a seasoned entrepreneur. This is why hiring a tax consultant in Sydney or any other big city is a vastly preferable way to go.
Also, it’s important that you always go with a recommendation from someone you know.
Failing to analyze cash flow
The more your business grows, the more you will start borrowing, but also making a profit. This will accumulate costs and income streams over time. When combined (usually for analytic purposes) all of these form “cash flow”. And, what’s so special about the infamous cash flow? Well, you have to be able to control it at all times – lose your grip of it and you’ll see how quickly your startup will start failing.
The thing with cash flow, however, is that we’ve made it a really big word – no one really talks about cash flow without a worried look on their face. As such, aspiring entrepreneurs tend to avoid it until it’s too late or almost too late. This is why cash flow needs to be analyzed even before a business gets the faintest taste of profit. Although it’s much more complicated than this, cash flow is essentially the relationship between money that comes in and the money that goes out. Why is realizing what cash flow essentially is so important? Well, the difference between the expenses and earnings is exactly the point of every business – profit!
These 3 mistakes are among the most common ones in the world of startups. Setting clear goals is important in financial terms, but, it also gives a startup its identity. Of course, finances aren’t easy to handle, and if there’s an aspect of running a business that deserves professional help, it’s the financial aspect. Finally, every entrepreneur needs to keep their eyes on the prize – in the end, income and outcome matter little in comparison to profit, and your cash flow is the encyclopedia of your earnings.