Managing your startup finances is one of the most important things you can do as a business owner. Making smart financial decisions early on can help your business grow and succeed in the long run. However, bad advice from well-meaning friends and family members can significantly set your business back. This article will discuss some of the worst pieces of financial advice you can get when financing your startup.
Don’t Worry About Finances – Just Focus On the Product
One of the worst pieces of financial advice is simply focusing on the product and not worrying about the money. This strategy might work in the very short term, but it’s a surefire recipe for disaster in the long run. A business needs to be financially sustainable to survive, ensuring healthy cash flow and that expenses are manageable.
If a business owner is so focused on the product that they’re ignoring the financial side of things, it’s only a matter of time before they run into serious trouble. Don’t let yourself be one of those people – always keep an eye on your finances and make sure you’re making smart decisions with your money. It might not be as exciting as focusing on the product, but it’s essential for long-term success.
According to Jeff Zhou, CEO of Fig Loans, “A lot of people in the startup world have this mentality of ‘fake it till you make it.’ They think they can wing it regarding their finances, and everything will work out somehow. But that’s not the case. You need to have a handle on your finances from day one. Otherwise, you’re just setting yourself up for failure.”
You Don’t Need a Business Plan
Some would-be entrepreneurs believe they don’t need to bother with creating a business plan because they can pitch their idea to investors and let them dictate what they need. However, this is terrible advice for anyone starting a business. A well-crafted business plan is essential for several reasons.
First, it forces you to think through every aspect of your business, from the products or services you’ll offer to your target market and how you’ll reach them. This process can help you identify potential problems and develop solutions before launching your business.
Additionally, a business plan is essential for securing funding from investors. Without one, it will be much harder to convince potential backers that your startup is worth their time and money. So if you’re serious about starting a business, take the time to create a comprehensive business plan – it could be the key to your success.
According to Jim Pendergast, Senior Vice President of altLINE Sobanco, “A business plan is like a roadmap – it helps you to map out where you want to go and how you’re going to get there. Without one, it’s much harder to make your business successful.”
Use Your Personal Credit To Finance Your Startup
When starting, using your personal credit cards to finance your business can be tempting. After all, getting approved for a credit card is easy, and the interest rates are usually low. However, this is generally not a good idea. As you may discover later that having your startup’s finances and personal money in the same place does not work well, you should try to open a business account to keep them separate. Additionally, when making payments as a new startup, you should learn how to create and send an invoice to save time and effort.
First, keeping your personal and business finances separate can be difficult when they’re both on the same credit card, making it hard to track expenses and make sound financial decisions for your business. Additionally, if your business fails, you’ll be stuck with debt, which could ruin your credit. So it’s usually best to keep your personal and business finances separate, choosing the right strategy to fund your business.
According to Catherine Schwartz, Finance Editor of Crediful, “One of the worst things you can do when starting a business is to finance it with your personal credit cards. This can make it very difficult to track your expenses and put your personal credit at risk if your business fails.”
Don’t Bother With Bookkeeping or Tracking Expenses
Another mistake startup owners often make is assuming they don’t need to bother with bookkeeping or tracking expenses. After all, isn’t that what accountants are for? However, this is faulty thinking. As a business owner, it’s your responsibility to understand where your money is going and make sure you make sound financial decisions.
Doing this means tracking your expenses, ensuring all your bills are paid on time and keeping an accurate record of your income and expenditure. In addition, you should have a basic understanding of bookkeeping so you can prepare your own financial statements.
Having this knowledge will give you a clear picture of your business’s financial health, which is essential for making informed decisions about its future. Failing to do this can quickly lead to financial problems, so getting into the habit of bookkeeping from the start is best.
Spend Money Like There’s No Tomorrow
Any startup founder will tell you that raising money is hard. You have to put yourself out there, make a great pitch, and convince people to invest in your vision. Once you’ve successfully raised money, spending it like there’s no tomorrow can be tempting. After all, you can always raise more money later. Wrong.
One of the worst pieces of advice for startups is to spend money like there’s no tomorrow. Not only does this put unnecessary strain on your financial resources, but it also sends a message to investors that you’re not responsible for your spending. If you want your startup to be successful, it’s essential to be prudent with your spending and only make investments that will generate a return. Otherwise, you risk running out of money and having to declare bankruptcy.
Invest In Risky Ventures To Try and Get Ahead Faster
Bad advice for startups: invest in risky ventures to try and get ahead faster. The allure of a quick return on investment can be tempting, but it’s important to remember that high-risk ventures often don’t pay off.
Investing in risky ventures can often lead to financial ruin. Startups should instead focus on building a solid foundation and developing a sound business strategy. While it may take longer to see results, this approach is more likely to create long-term success.
According to Brian Dechesare, Founder & CEO of Breaking Into Wallstreet, “Investing in high-risk ventures is a recipe for disaster. Not only is there a good chance you’ll lose your entire investment, but you could also end up in debt. Instead, startups should focus on building a solid foundation and developing a sound business strategy.”
Don’t Save for Rainy Days
One piece of advice that you should not follow is the notion that you should “reinvest all your profits back into the company.” While it may seem like a good idea initially, this can be a recipe for disaster. Here’s why:
First of all, reinvesting all of your profits back into the company leaves you with no cushion in case of emergencies. You could be in a challenging financial situation if something unexpected comes up. Additionally, while it’s important to reinvest in your business to help it grow, you must also be mindful of cash flow. If you’re constantly reinvesting all of your profits, you may be in a situation where you don’t have enough cash to cover day-to-day expenses.
Anthony Martin, Founder and CEO of Choice Mutual, recommends, “Startups should always have a rainy day fund to cover unexpected expenses. This will help ensure the business can continue operating even if something unexpected arises.”
Debt Is Good Because It Means You’re Growing Fast
Taking on debt may be seen as a sign of a thriving business, but it can also be a dangerous move for a startup. While debt can help a business to grow quickly, it can also put the company at risk if things don’t go as planned. Startups are often lauded for their ability to bootstrap and grow slowly without taking on too much financial risk.
In this case, taking on debt may not be the best option for the company. Instead, it may be better to focus on other funding forms, such as venture capital investments. Debt can be helpful for businesses, but you should use it cautiously. For startups, taking on too much debt may mean risking the company’s future.
According to Dean Kaplan, CEO of Kaplan Collection Agency, “Startups should be careful about taking on too much debt. While it can help the business to grow quickly, it can also put the company at risk if things don’t go as planned. Therefore, it’s important to have a solid plan for how you will repay the debt. Otherwise, the business could find itself in a difficult financial situation.”
Taking bad financial advice can be detrimental to your startup. It’s essential to be mindful of the advice you take and to only listen to those who have your best interests at heart. Be careful of taking on too much debt, and don’t be afraid to save for a rainy day. Making smart financial decisions early on will help your business grow and succeed in the long run.