Entrepreneurs and startup founders deserve all the praise they get; their job is one of the hardest things to do, let alone do it right. These days, many job-holders abandon their offices due to the call of their entrepreneurial instincts. This is a good thing, worthy of praise, but there are a number of lessons to be learned on your way to startup glory – things which you do not necessarily have to learn the hard way. Some common financial pitfalls that entrepreneurs often do not realize at first are as follows.
1. Time, like money is precious
During the early days of being in business, it is easy to find first-time entrepreneurs engaged in meetings, traveling to them, and planning for them. Time is a major and scarce commodity in the entrepreneurial world and one should make the most of what he has. "Only attend meetings that have relevance for your business" is a dictum you want to swear by, else you may find your finances to be in dire straits.
2. Be positive, but ready for the worst
Things often go bad all of a sudden, so if you are not ready financially to quit your job and embrace entrepreneurship full time, then don’t. You can always pursue it as a side project till you get traction. Set aside three to nine months of living expenses just in case. Remember, tough times don’t last, but tough people do, and this will ensure your financial toughness.
3. Manage your cash flow properly
Running out of cash is one of the prime reasons behind the shutdown of companies. Control and manage your cash flow properly for the continued operations of your concern. If you are not able to do that, you put the company’s existence in peril. Create a budget and remember to stick to it earnestly.
4. Retain clarity on goals and milestones
You should avoid useless daydreams about your idea. Instead, remember to focus testing the concept with actual potential customers. From the word go, set yourself goals and milestones that can be measured. Track your progress regarding the same.
5. Watch where you spend
In the initial days, there are just so many things to do that tracking the spending takes a backseat. But remember to put in place a system that does the same for your own benefit. This will save you hours in needlessly going through documents to fork out the financial information when needed. Use online tools in this process, as they help you a lot though for crucial things you may need the help of professionals.
6. Get the ball rolling
Get your first customer as soon as you can. In their absence, you literally do not have a business. Approach potential customers with your product and figure out if things are working. If not, fix it. This is crucial.
7. Cultivate honesty and openness
Make sure you are honest with people giving you a loan or investing in your company. Maintain clarity in communications. Do not keep secrets, hide anything, or be in any way shady with these people. If you do so, you are only asking for trouble. Acquaint them with the finances of your concern on an ongoing basis.
8. Remember to reward
"You cannot have equity for dinner." Just keep in mind those words when deciding your paycheck. It is true that many early-stage startups often do not have sufficient funds to give fat paychecks, but you do need it and that is a fact that investors recognize.
9. Keep check on fixed expenses
In the early days of your business, it is wise to keep your fixed expenses to a minimum. Do not go overboard the moment you are funded and spend exorbitantly in real estate. That can always be done afterward, when your company stabilizes somewhat in financial terms. Check out incubators and be in the know on low-priced office arrangements.
10. Before your hand over your resignation
When you are employed by someone else, you tend to take a lot of things for granted. But when you are an entrepreneur, you are the one who has to pay for all of them. So, calculate what it amounts to and hand over your resignation only after you have made sure you know what you are doing.