This short guide for starting a business focuses on the three top mistakes you should avoid to make the whole process easier.
When you first venture out of the corporate world into your own business many people will tell you that you can’t do it, its too hard, there are no regular paychecks, times are tough and a miriad of other negative comments.
They all have a grain of truth to them. If you believe any of those negatives then they will most probably show up in your business. What you believe creates your reality. There are three things that will be pitfalls you want to avoid in starting a business — and make it easier.
Guide for starting a business: 3 things to avoid
Several factors contribute to starting a business and operating a successful business. However, finances remain at the top of the list. As money directly or indirectly impacts every aspect of business, poor financial management makes everything from borrowing funds to managing cash flow more challenging. Although mistakes can become valuable business lessons, these financial pitfalls can be too costly to bounce back.
1. Borrowing prematurely
When you don’t have the funds to cover business expenses, borrowing money is the first solution that comes to mind. Entrepreneurs will apply for a credit card, line of credit, personal, or business loan. The only problem is, they do so without knowing and evaluating the facts. Sure, a loan serves as a financial lifeline, but at what cost?
The first factor to consider when taking out a loan is how you plan to repay it. All too often, entrepreneurs assume they’ll repay the loan with future revenue. Although it’s good to be optimistic, forecasts are only projections or educated guesses on what your company will earn. If you fall short of your goals, you’re still required to repay the loan. Consequently, you’ve taken on a debt you can’t afford.
Another factor that goes overlooked is your credit status. Borrowing money in any form with less than satisfactory credit increases your out-of-pocket expenses. If you find a lender that will work with you, they often require you to pay a higher interest rate. Every month that the balance isn’t paid in full, the interest accumulates, resulting in more debt.
Solution: Though it may be common to borrow the money for your business, don’t go this route without careful consideration. Assess your cash reserve and finances to determine if you have the means to repay the loan. Also, use products like starter loans to help you establish or re-build your credit so that you can get the most affordable loan possible.
2. Not preparing for emergencies
You never know when something could arise that requires a large sum of cash to resolve. In the world of business, this could happen at any time. Everything from a slow period to equipment failure could manifest, resulting in the need for cash. Unfortunately, most entrepreneurs fail to create a cushion or nest egg to tide them over when unforeseen circumstances develop. They end up having to borrow the money or charge the expense, which results in more debt down the road.
Solution: Entrepreneurs should strive to save at least three month’s worth of expenses for rainy days. Allocating a percentage of your revenue towards savings can help you reach this goal. If finding extra money in the budget to set aside is a struggle, there are other avenues to consider. Searching for more affordable suppliers, streamlining processes, and saving on everyday business expenses can free up funds to place in an account.
3. DIY accounting
Outsourcing your accounting needs to a CPA or hiring in-house are both expensive investments for entrepreneurs on a shoestring budget. As a result, many decide to take accounting responsibilities into their own hands. Unfortunately, novice entrepreneurs aren’t well-versed in bookkeeping and financial management, leading to problems ranging from payroll issues to tax violations.
Solution: For entrepreneurs that don’t have the means to hire or outsource their accounting, investing in tools for complete comprehension and execution of financial management practices is ideal. Whether that means taking accounting courses, reading books, or investing in software to streamline processes, the more you understand accounting, the better it is for your brand. As your business expands or revenue increases, entrepreneurs should seriously consider handing these responsibilities on to experts.
Finally, as part of any guide for starting a business, you should be aware that 90% of new businesses fail within the first year. Although there are several reasons for this outcome, poor financial management is a common culprit. By falling into financial pitfalls like those discussed above, entrepreneurs create expensive problems that are challenging to recuperate from. Ultimately, making informed decisions, preparing for rainy days, and investing in accounting can help you avoid falling into the same trap. If you want to know more about starting a business, you can find relevant information at companyincorporationmalta.com.
