It’s great to see so many young people going out and pursuing an entrepreneurial career. Starting a business is a roller coaster of emotions. There will be constant ups and downs and it only gets more intense as your company grows. This is especially true when money comes into play.
Very few businesses will survive. Those who do were the ones who are able to identify a clear business model and maintain a positive cash flow. Starting a business is also very expensive. Whether it’s product development, marketing, or sales you’d be surprised how quickly it can add up. If you don’t pay attention to common pitfalls you’ll be in trouble.
Here are four common money mistakes young entrepreneurs make when trying to start a business:
When running your business cash is most definitely king. The majority of businesses fail due to the lack of or misuse of capital. If you’re naturally good with numbers then you have a huge advantage when running your startup. However, if you’re sloppy with your accounting you’re going to run into trouble.
Whether you’re doing the bookkeeping yourself or outsourcing it elsewhere you need to be thorough. You need to make sure every single invoice and payment is tracked and reported as you grow. I recommend using some form of digital accounting software that offers features like online invoicing and expense management. That way you’re books can be managed anytime and anywhere.
Failing to Stay Lean and Mean
Every entrepreneur should live by the Lean Startup methodology. It is the bible of entrepreneurship. Why spend your money building something that nobody wants? Sure you can do market research but you won’t really know until you release your product.
Sit down with your team and really try and hash out your core competencies. It’s common for entrepreneurs to feature creep (include unnecessary features in the first phase) which just adds more time and money to the development. Once you’ve built your minimum viable product go ahead and launch and see how the market reacts. If they love it it’s time to put in more time and money. If not – then it’s back to the drawing board. This way you’ll mitigate your risk as much as possible.
Living Above Their Means
The life of a successful entrepreneur is glorious. It’s easy to get caught up in the lifestyle before you’ve actually “made it”. What most people forget is the journey each of those successful entrepreneurs had to endure.
Forget the team dinners, happy hours, and big salaries. The more comfortable you get the more likely you’ll get overtaken by your competition. It’s important to stay grounded at all times and delay gratification. Sure you can celebrate the small victories but don’t be excessive.
Raising Capital Too Early
Every entrepreneur looks forward to the day that they bring in that big Series A round of funding. Now you can pull a salary and your on your way to success. While this can be true it’s common for individuals to jump the gun on funding. When you raise money it often comes at a cost. First and foremost you’re likely going to give up control. Not only that you now have a massive amount of pressure from your investors.
If possible you should try to bootstrap your startup as long as you can. Try to find co-founders who are willing to work for equity and who believe in the vision as much as you do. As soon as you raise funds it starts the clock. The more you can fail and pivot prior to raising capital the better off you’ll be when you actually do.
Starting a business is tough. If it was easy everyone would do it. The truth is there has to be winners and losers in life. That said there’s plenty you can do to be on the winning team. Be sure to pay attention to these four common money mistakes and make sure you don’t fall into the same trap.