Cash is the lifeline of any business, but for startups, that lifeline is more important than ever. One screw up in the financial department, and there may not be a resuscitation. Without a proper financial plan, there’s no way you’ll be able to continue to see growth, no matter how great of a product you have or service you have.
Even the best of businesses will eventually reach their demise if they don’t take heed of best financial practices for startups. An estimated 90% of startups fail. To avoid becoming another startup statistic, here are five financial mistakes to avoid:
1) Moving At A Slow Pace
Startups are characterized by their ability to run lean, agile machines. Small businesses that run like slow corporations can run out of money––fast. It may be tempting to take the “slow and steady” approach when you’re just launching, but running the business that way for too long can easily lead to complications you can’t afford to have.
Corporate companies tend to run slow because they have to funnel through several people and multi-faceted layers of approval. When you take too long to make decisions, you move just as slow. Refrain yourself from going over every detail painstakingly, from the curve of a letter on your logo, to the “About Us” copywriting of your website. You can always come back and clean up.
This isn’t to say that you should put something sloppy on the market, but that you need to push forward and ensure your product, service, and brand actually get to the market in the first place. After you’ve got some validation, you’ll likely have to make changes based on feedback anyway.
2) Hiring Too Quickly
In business, there’s a popular saying: “hire slow, fire fast.” There’s a reason why so many companies strive to abide by the rule of thumb. Employees are one of the biggest expenses, and businesses can’t afford to make moves too quickly without calculating their financial circumstances. Employees drain costs quickly: in addition to wages, they’ll need equipment, space, and supplies. This isn’t considering other perks, like insurance and paid time off.
Hiring slow also ensures you hire the right people. When entrepreneur Guy Kawasaki was an executive at Apple, he called the fast approach to hiring “the bozo explosion.” In a blog post he wrote, he described what he believed needed to be done to prevent this from happening: “When you’re in a rush to fill openings to respond to growth, you make mistakes. Unfortunately, many companies adopt the attitude of ‘Hire any intelligent body, or we’ll lose business–we’ll sort everything out later.’
Instead of hiring a full-time employee, consider signing on an intern who is “paid” in school credit, or via a stipend. Interns help you with your basic work day, and are often a startup’s first official employees after they’ve gained capital and understand the value of particular interns.
3) Not Extending Your Hardware Support
It’s not uncommon for startups, particularly those outside of the tech industry, to simply take a product’s warranty at face value. But this can be a huge––and costly––mistake. Traditional warranties will only cover you if the product appears to be defunct thanks to a manufacturing error. You are not guaranteed quick response times or reliable care, which is necessary when running a business.
Even premium support options that you choose at the start of a purchase have an expiration date that deserves attention. After the initial warranty runs out, many startups who have had smooth sailing don’t choose to renew their hardware and software support. However, this is actually the most important time to have extended support, because after a few years, your products can experience hardware issues, or technology changes and certain features are no longer supported in-house. Having a reliable IT support contract with your products ensures you’ll never be left scrambling to fix something that’s gone wrong. Otherwise, you could spend upwards of thousands of dollars replacing parts and programs.
4) Not Recording Your Cash Flow
Eight-two percent of businesses are forced to shut down because of inadequate cash management. Every financial decision you make needs to be written into your financial records. From the little things, like your website domain, to the large things, like business accounting software and hardware products, it should all be recorded. Without these purchases and investments recorded, it can quickly become frustrating and futile to make accurate financial forecasting decisions. The more detailed your records, the better grasp you’ll have on the financial future of your business.
5) Not Having Clear Financial Goals
As the business saying goes, “what gets measured gets done.” And without clear financial goals, there’s little that can be measured. When you set goals that fall within specified time frames (monthly or quarterly, for example), you give yourself and your employees something to aim for. If you’re just starting out, break down those larger goals into weekly micro goals to ensure you stay on a straight path.
Furthermore, you can use the result of those goals to make accurate predictions about where your business is headed and evaluate your progress to make room for new goals. Your goals should centered around profitability, cash flow, and expansion. It’s important that you set realistic goals; if you haven’t launched yet and have no sales, don’t expect to net thousands in your first month. Start small, and you’ll be rewarded with results.
