It takes a lot of planning and hard work to get a business idea on board and get it running. Funds are the fuel for your startup and efficient financial planning and management keep the fuel tank at optimum levels. A poor financial management can be fatal for your startup.
In this blog post, we will discuss about 6 major financial mistakes that could break your business and how you can avoid them to accelerate your growth graph.
Unmonitored Cash Flow
Cash is the life-blood of a business. You may find managing and tracking your finances regularly a tough row to hoe while dealing with multiple business dimensions, but accurate and updated financial records are vital for the sustenance and growth of the business.
Keep a constant eye on your burn rate. In case your burn rate is exceeding the forecasted numbers, it’s time you take measures to optimize it. Around 29% of the startups failed as they ran out of cash. Proper documentation of your cash inflow and outflow that reflects the actual status of your business prevents unanticipated cash delays from customers and vendors and does not shock you in case of unpredictable business fluctuations.
High Payroll Costs
In the initial stages of their development, many startups are lured by hiring highly paid experienced managers and executives, which bulks up to the monthly cost of the company. As a best practice, you should clearly know the mission and vision of your company and how it can add value to their lives. Look out for talented people instead of experiences ones, who have the zeal to work out of their comfort zone in a dynamic work environment. According to Harvard Business Review, teams that have average experience but high level of passion and shared vision showed better productivity that the ones with high experience and low levels of passion and shared vision. Labor costs consume around 70% of the business costs, making it the top most source of expenditure to companies. No wonder around 70,000 employees of tech startups have lost their job since March during the Covid-19 economic crisis.
Overspending On Services and Business Essentials
Setting up your office in a large office space at a posh location, buying premium office furniture and other office supplies, expensive internet services and web hosting provider and more can add on to your monthly budget. Frugality is what you need to adopt to sustain your startup. You need to have a clear understanding of your priorities and how you can efficiently manage your potential expenses. Around one-third of the startups fail due to overspending of money. As a founder, you take care of your pennies and the pounds will take care of themselves.
Managing The Finances On Your Own
Hiring a professional financial expert is the best investment you can do for your company to reap long-term benefits. Don’t try to be the Jack of all trades and mess up the things in the end. If you don’t afford to hire a full-time financial expert, you can always outsource them on as per need basis. Make sure you track your day-to day financial management to have a fair idea of the real-time financial status of your company. Financial experts will help the startups from their infancy in determining the financial aspects of the feasibility study, drawing up the business plans and optimizing the internal costs to the company. Efficient management of the finances of a startup is crucial in attracting investors and lenders.
Mispriced Product
Pricing your product right is a crucial step. If your product is highly priced in regards to the value it is delivering to the customers, you won’t stay long in the market as customers have long memories. They will shift to the product giving them value for their money. Don’t undervalue your product either to establish yourself and to gain the market share. A low cost- high volume price strategy ends up putting a lot of pressure on the financial reserves of the company to meet the financial gap created by low-pricing.
Unrealistic Financial Goals
Sometimes the root of your financial issues lies in your financial plan. An unachievable financial goal will only leave you disappointed. Make sure you lay down short-term and achievable goals. Rather than having a goal of becoming the top start-up in your industry, clearly specify your profit, cash-flow, expansion and funding generation goals for the coming 5 years. Keep an eye on your goal achievement timeline and if you are lagging behind, look out for the pitfalls and try to overcome them.
Wrapping Up!
Financial management plays a pivotal role in the sustenance and growth of a startup. If you have clean documentation of your finances, you don’t fall into the trap of a vicious financial crisis, unawaredly. Half the battle of establishing your startup is won if you have the right mind set of handling your finances.
Author Bio- Vadika Bansal is an enthusiastic blogger, passionate about researching and writing about the trends and developments in the field of startups and small businesses.