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5 Financial Mistakes That Push Striving Startups Into Bankruptcy

5 Financial Mistakes That Push Striving Startups Into Bankruptcy
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By    |   Tuesday, 27 February 2018 07:09 AM

Starting a business is very easy especially when there are adequate financial resources. However, the case differs when it comes to managing daily business operations. This is why most people who have left their various jobs to start companies have failed within one year.

Getting your business to stand the test of time is not a matter of fate but your ability to access the right information, build vital relationships and make crucial decisions. Mistakes are part of business and you can either choose to be a victim or victor. Many successful entrepreneurs have made mistakes for us to learn and surmount current and future business obstacles.

Financial mistakes are avoidable.

Here are five financial mistakes that plummet striving startups into bankruptcy.

  1. Think Big/Start Big Syndrome

I’ve noticed that inexperienced entrepreneurs usually get trapped in business within one year of operation simply because they are thinking big without taking into consideration their financial capacity. Unfortunately, the joy of executing their unique ideas results in endless struggle with bankruptcy.

They are usually tempted to purchase high tech and costly gadgets, just like that of their competitors. Some even equate having sophisticated equipment to achieving maximum sales. While those who have succeeded in getting a segment of the market and increased profit quickly contemplate business expansion without evaluating the financial implications.

This pattern of thought has rendered many startups bankrupt. Thinking big is a great mentality every entrepreneur should have, but starting small will bring your big and lofty thought to fruition. A sudden growth in your startup doesn’t mean you have to expand. Growth is a process and if you jump a step, the fall will be fatal.

You are permitted to think big but start small to have adequate fund to invest in other areas of the business. When you don’t properly handle these areas, your business might join the 90% businesses that never survived after 5 years.

  1. Lack of Financial Mentorship:

Mentors are the ladder on which we stand to have a clear view of issues. It is critical for small and inexperienced business owners to have a financial mentor. Someone who you trust to tell you the ups and down of your business. This person should be a financial expert who can help you cut cost and assist you with tips to wisely invest in your new business.

Do away with the myth that you need money to consult a financial firm or individual. Your business is more important than your fears. According to Jason Sugarman, a successful entrepreneur, ‘experience is the engine of any business. The easiest path to success is to know the people who have worked these “engines” and apply yourself to their clever directives’.

You can’t walk alone on this journey and survive. You must consult experts in financial matters, so you can have time and think of other ways to move the business forward.

  1. Inability to Utilize Viable Loan Options

It seems as though business can’t be totally separated from borrowing. Most business owners usually borrow for business expansion, starting another venture or to tackle emergency situations. However, the problem is not with borrowing but the ability to utilize viable loan options to avoid future problems.

Bank loans, equipment loans, invoices financing, car title loans, peer-to-peer lending networks and more, are avenues small business owners can obtain loans. It’s however pertinent to get information and evaluate the cost implications of taking a loan to finance your business.

There are some loans you wish you didn’t collect because of the interest rate and maturity period. Hence whether it is bank loans, equipment loans, invoices financing, car title loans, and peer-to-peer lending networks etc. you should get relevant information to avoid messing with your business fund.

  1. Under-utilization of Digital Technology

Believe it or not, the advents of digital technology have made life very easy for entrepreneurs. In terms of advertising, marketing, automation, time management, human resource functions, cloud computing, data management, blockchain technology etc. digital technology has infused speed and efficiency which has resulted in reduced cost to carryout daily business operations.

For instance, traditional advertisement is too expensive when compared to social media marketing, SEO, and video marketing. Also, marketing, automation, time management and personnel management software have assisted small business owners to cut cost and achieve set objectives. For example, ARK SmartBridge can connect business owners and allow communication between blockchains in the altcoin community.

Every business owner aspires to cut cost by utilizing the best strategy. Failure to adopt modern technology in your business can adversely affect your business financial growth. It is imperative to adopt digital technology to ease your stress and enable your business to achieve set goals faster.

  1. Poor Recording of Cash Flow

The Euphoria of making sales get most entrepreneurs lost in non-essential matters. Failure to record how money comes in and goes out of the business will keep you afloat and soon out of business. Businesses grow faster and become stronger when there is a record of the goods and services that make the highest and least sales.

We consulted for a skincare company some time ago; they make sales on a day to day basis but fail to keep proper account of how money was spent on manufacturing each product. They couldn’t trace which products do not sell well and the ones that give the highest profit. When we took hold of their cash book, the results changed and they became 10 times better.

You have to meticulously take note of this process so as to know what to make your priority when producing, buying and selling goods and services.

Richard Agu is a researcher, entrepreneur and freelancer, passionate about entrepreneurship and self-development. Currently, Richard writes for Entrepreneur.com, Goodmenproject.com, among others. Follow him on Linkedin.com by clicking here now.

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Financial mistakes are avoidable. Here are five financial mistakes that plummet striving startups into bankruptcy.
financial, mistakes, startups, bankruptcy
967
2018-09-27
Tuesday, 27 February 2018 07:09 AM
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