3 Financial Pitfalls that Start-ups Must Avoid

Start-ups live a precarious life. Depending on the industry, as many as 63 per cent are likely to have failed before they reach their fourth year of operation.

Of course, there are some challenges that start-ups cannot avoid and these can very easily derail any businesses no matter how well run.

The large upfront costs required to get a business started, combined with the pressure of dealing with more established competitors, can put start-ups on the back foot from the very beginning.

However, financial mistakes are often the main cause of start-up failure and these can usually be avoided.

So, if you have a young business and want to make sure that it survives long enough to become an old one, you should avoid these common pitfalls.

 

Making Emotional Decisions

Many start-up owners have a huge emotional investment in their business and this is completely understandable.

Perhaps it’s the culmination of an idea that you’ve had for years, maybe it relates to a cause that’s close to your heart, or it could be something that you and your friends have been working on for some time.

Whatever the reason, start-up owners need to have passion for their company, otherwise it has no chance of success.

However, if that passion boils over and starts affecting the decision-making process then it can be disastrous for your business.

The best way to avoid this is to commit to a financial plan as part of the first step on your start-up journey.

There’s a lot to think about, including income, outgoings, future projections, supply chains, taxes and many other considerations.

Unfortunately, those finances won’t simply just fall into place, so it’s vital you have a plan to work from.

 

 

Not Expecting the Unexpected

Another major financial mistake made by fledgling businesses is not being prepared for the unexpected. In the early stages of development when finances are tight and a company is not yet established, even a slight disruption can prove fatal.

If, like most modern start-ups, you are dealing with digital technologies, disruption can come in many forms from server downtime to data loss.

It is important to consider what your next step is when, not if, disaster occurs. What’s your business continuity plan, for example, and how much will a system interruption cost you?

Business continuity planning can help you react quicker to disruption, get systems back online and put a clear price on disruption before it occurs.  

 

Getting Dizzy with Success

Although preferable to failure, success brings its own challenges for small businesses. With money coming in and everything going well, it is easy to get carried away and make stupid decisions.

One of the main mistakes made is not saving enough money for when things take a turn for the worse. Another is attempting to stretch your start-up too thinly.

Invest your early success back into the company in order for it to grow, rather than diversifying into new areas. Before every major financial decision ask yourself if your company is ready for it.

Start-ups are hugely important to a country’s economy, creating new jobs and stimulating fresh ideas. If these vital businesses are to continue, however, company owners need to take good care of their finances because start-up success is not easily achieved.

Are you considering a start up?  Have you ever made any the mistakes I’ve shared above?  I would like to here your stories and thoughts in the comments below.