5 Financial Mistakes Early Startups Tend To Make And How To Avoid Them

Posted on Apr 24 2015 - 7:02am by Andrew Lisa


Going into business for yourself might be the biggest undertaking of your life. But like anything worth doing, it will be difficult, and there will be mistakes along the way. Every business is different, but from tech startups to arts-and-crafts stores, every new venture has similarities – and can fall victim to the same mistakes. Follow this guide to making sure your ambition doesn’t outweigh your success.

Don’t Count Your Chickens

As discussed in “Top 3 Financial Mistakes Young Professionals Make,” one of the worst things a startup can do is operate under the presumption that they’ll make more money next year. When you budget for what you hope you’ll make next year, you’re not spending with what you actually have this year. Next year’s projections may be fantastic, but they are just projections. Work with what you have, not with what you want.

Be aware that it usually takes more time than expected to get income coming in through the door. Ensure that you can survive for at least the first year without significant income and watch your “burn rate” like a hawk.

Marketing: Go Big Early

For young businesses without an established brand or customer base, it’s important to spend as much money as possible up front. Most businesses spend fewer than 5 percent of their budget on marketing once they’re established. But in the crucial first three years, some of the most successful businesses in the world spend one fifth of their budget – that’s a full 20 percent – on marketing. Before the world knows who you are, let them know you exist by boosting your public profile.

Startup marketing has evolved into a specialized field with agencies whose sole focus is restricted to working with startups. If you need help, this may be the route to follow. You’ll be dealing with people who understand the unique needs of small businesses with limited cash flow.

Don’t Sell Your Idea

When young businesses are, well, young, they’re hungry for success – but success must start with investment. When pitching ideas to investors, small businesses put their best foot forward. They let the money guys know that they have a stake in the business’s future. But that doesn’t mean that venture capitalists – or anyone else – own the startup’s message, plan or vision. Your business needs seed money, but once it stops being your business, you may as well have never gotten into business in the first place.

People that can bring additional skills and connections are often more important than money. You’re better off forging partnerships with people who buy into your vision, rather than those who offer the biggest check.

Don’t Hire Too Quickly

Shopping for employees is like shopping for shoes – if you buy the first pair you like, chances are you’re going to walk past another shoe store later in the day that you wish you had waited. You want to get your business startup going; you want to get things up and running. Fine. But it’s imperative to go through a lengthy vetting process to make sure the people who are going to actually run that business startup are the best people possible. Great employees will wait for a great job – don’t jump the gun.

From tech startups to retail operations, every business is different. But when it comes to mistakes that can sink an enterprise, new business endeavors have a lot in common. It’s easy to get caught up in the common pitfalls that drag so many businesses down, but if an entrepreneur knows the warning signs, those traps are much easier to avoid.

About the Author

Andrew Lisa is a freelance writer living in Los Angeles. He writes about small business management and offers budget help and software reviews.