To help new entrepreneurs avoid costly financial mistakes, we reached out to experienced founders, CEOs, and business leaders for their insights. From creating a detailed budget plan to developing a comprehensive contingency plan, here are 13 expert tips on avoiding common financial pitfalls in the early stages of your business journey.
- Wait for Cash Flow Before Spending
- Create a Detailed Budget Plan
- Prioritize Meticulous Record-Keeping
- Utilize Existing Resources First
- Develop a Detailed Financial Forecast
- Invest in Aggressive Marketing
- Monitor Cash Flow and Expenses
- Plan for Start-Up Costs
- Ensure Financial Flexibility
- Track Expenses Diligently
- Separate Personal and Business Finances
- Recognize and Seize Opportunities
- Design a Comprehensive Contingency Plan
Wait for Cash Flow Before Spending
I remember starting my business. That first year, I bootstrapped and scrutinized every penny spent. Too many entrepreneurs make the mistake of playing business before they even have a business. They lease space, hire staff, and even make expensive office purchases before they have a penny coming in the door.
While leaders need to plan for the future, they don’t need to act on it. They should know where they want to lease, who to hire, and shop for deals on equipment, but none of these should be acted upon until there is a 2-1 ratio of cash coming in the door.
If you’re in construction, you should have space sold before you pick up a nail. If you’re in the restaurant business, you should have catering orders in place before you go to the supermarket. Don’t spend until you have.
Jon Kozesky, President, Jon Thomas Consulting
Create a Detailed Budget Plan
Many new entrepreneurs get excited about their business idea and fail to accurately estimate the costs involved in starting and running the business. This can lead to a lack of adequate funding, which can impede the growth of the business.
To avoid this, it’s important for new entrepreneurs to research and create a detailed budget plan that reflects the true cost of starting and running the business.
Span Chen, Growth Director, Notta
Prioritize Meticulous Record-Keeping
One big mistake is not keeping clean books! While it may seem time-consuming, keeping track of expenses, materials, and inventory is essential for setting appropriate prices and ensuring sustainable growth for your business.
By diligently tracking these metrics, you gain valuable insights that enable informed decision-making and long-term success. Embrace the practice of meticulous record-keeping as a fundamental aspect of managing and scaling your business effectively.
Diane Howard, Founder, Esthetic Finesse
Utilize Existing Resources First
New laptops, software, copiers, printers—major technology purchases aren’t always necessary on Day 1 of your business. Whenever possible, use what you already have.
This helps you keep more cash in your business until you start getting paying clients to help fund your purchases. Use customer deposits to buy software licenses or equipment to complete the job. Your customers won’t know the difference, and your business may be more financially stable.
Alli Hill, Founder and Director, Fleurish Freelance
Develop a Detailed Financial Forecast
As a new business owner, having a well-defined financial plan is essential. Many new business owners are taking reactive steps like reviewing their P&L, but lack the proactive approach to finances. It’s important to consider all aspects of revenue, expenses, and cash flow to manage your finances efficiently and forecast accurately.
By creating a detailed financial forecast that takes into account sales projections, fixed and variable costs, and cash flow timing, you’ll gain a better understanding of your business’s financial situation. This understanding will allow you to make informed decisions and achieve sustainable growth.
Inbar Madar, Founder and Business Financial Expert, M.I. Business Consulting
Invest in Aggressive Marketing
A common mistake among new entrepreneurs is not investing enough in their marketing and branding initiatives. They just assume their product/service will be able to appeal on its own with limited exposure.
In today’s marketplace, you have to be aggressive and proactive with your marketing strategy. You need to be constantly promoting your brand through social media and targeted ads. Making and releasing content constantly to keep yourself relevant to the customers of today.
You can ease up after you have solidified your brand and business in the marketplace, but until then, you should be spending as much as you possibly can in this area.
Mark Smith, Program Chair, University of Advancing Technology
Monitor Cash Flow and Expenses
I’ve seen businesses fail that could have succeeded if they would have simply managed their cash flow. When a new business grows too quickly, expenses balloon along with revenue, but the net profit disappears.
New entrepreneurs who find themselves with a hit business must tread lightly. Keep a close eye on the cash flow, especially expenses, as you grow. You may need to pump the brakes until you can come up with cost-saving strategies. When we experience unexpected growth, we often turn certain projects down for this very reason.
Rick Berres, Owner, Honey-Doers
Plan for Start-Up Costs
The start-up costs required are not always planned for when starting a business. Little expenses add up, and even for a virtual start-up, an investment is involved in opening the business.
Entrepreneurs who hire a professional to help them get started will have a more accurate idea of the investment involved in their business, including cash reserves for slower times. Entrepreneurs will be more successful when they are prepared with realistic financial requirements.
Kimberly Bogues, Founder/CEO, Flourish Business Consulting
Ensure Financial Flexibility
Putting 100% of your financial resources into a new startup idea is a mistake. You need to give yourself flexibility for failure. Many times your ideas will work, but you need to give yourself some flexibility if the execution of those ideas is off the mark.
When I started in e-commerce, my initial business was too broad. There was nothing wrong with my business model; I just needed to rebrand and launch a business with a tighter end market. Being flexible to withstand that initial miss was crucial to long-term success.
Lou Haverty, Owner, Tank Retailer
Track Expenses Diligently
One common mistake is not properly tracking expenses, which can quickly lead to financial trouble.
To avoid this mistake, entrepreneurs should establish a clear budget and stick to it, constantly review their financial statements, use accounting software, and keep personal and business finances separate. By diligently tracking expenses, entrepreneurs can make informed financial decisions, avoid overspending, and successfully manage their business’s finances.
Tarun Saha, Co-founder and CEO, StallionZo
Separate Personal and Business Finances
One big mistake that new entrepreneurs make is mixing their personal and business finances. Keeping your finances separate is crucial for understanding your company’s financial standing. Mixing finances can cause inaccurate accounting, IRS audits, and difficulty in tracking expenses.
Entrepreneurs can avoid this problem by opening a separate business account and only using it for business-related expenses. It’s also a good idea to obtain a business credit card and build credit separately from personal credit. Maintaining proper financial records will help entrepreneurs make better decisions, secure funding, and achieve long-term success.
Basana Saha, Founder, KidsCareIdeas
Recognize and Seize Opportunities
There are a lot of different financial mistakes that new entrepreneurs make—and sometimes, even a mistake that seems simple and basic can come back and haunt you.
Failure to recognize the right opportunities at the right time—that’s one important mistake that we really need to focus on more. You have to be on high alert for opportunities at all times—and when you see an opportunity, take a moment to weigh the pros and cons, consider how it may affect your finances, and then decide if you’re going after it.
Will Baker, Founder, Skirtings R Us
Design a Comprehensive Contingency Plan
Starting a business involves risks, and unforeseen circumstances can arise that impact the financial stability of the venture.
To avoid this mistake, we emphasize the importance of creating a comprehensive contingency plan. This includes building an emergency fund to cover unexpected expenses, establishing strong relationships with lenders or investors for potential financial support, and diversifying revenue streams to mitigate the impact of any downturns.
By proactively planning for contingencies, entrepreneurs can minimize the financial risks associated with starting a business and ensure they have a safety net to fall back on if needed.
Simon Brisk, Director, Click Intelligence Ltd