3 Financial Mistakes To Avoid As A First-Time Founder

Entrepreneurs must take careful steps to avoid managerial, monetary, and economic shortfalls as they build their business from scratch. In that aspect, what are the 3 main financial mistakes they should avoid early on?

Tom Eisenmann said in the 2021 May issue of Harvard Business Review that more than two-third of start-ups do not succeed. Risks that follow running a business are countless, and many are financially related. First-time founders go through different blunders that need professional financial help to ensure a solid kick-start.

With so many things to think about when running a business – whether you're just starting up or you've had your doors open for years – there is a great deal of potential for error when it comes to financial health.

Continue reading below as we discuss these errors.

1. Insufficient bootstrapping?

Bootstrappers are those who build businesses without the backing of investors and have little or no starting capital.?It takes great dedication, sound work ethics, and pure single-mindedness to achieve successful business fruition.

First-time founders should at least provide working capital for one year ahead.?A clear and subtle financial plan with the estimation of costs, revenues, and a good pitch deck are initially needed to outburst first-time founders’ business.?

When first-time founders have insufficient working capital, they fall into financial failures and bankruptcy.?

2- Short-term planning?

Starting a business with so little experience can lead to serious financial consequences. Short-term planning demolishes goals and a business’s lifespan. In fact, the business is considered a cash flow source and an asset in the second place. Thus, ensuring to save money for emergencies, and in the end, for retirement is fundamental to adding value to first-time founders.?

As a junior entrepreneur, it is crucial to assess long-term goals and carve the path to achieve them through estimating future goals and performance based on current data.

3. Unreasonable fixed costs

Every type of business has its necessary costs to keep it running.

Costs typically fall into two categories, fixed costs, and variable costs. Understanding the difference between these two expenses can help achieve smarter business decisions and plans.

Fixed costs are the expenses that remain the same regardless of the business sales or item production like rent and salaries, and first-time founders will pay these fixed expenses regardless of whether the business bloomed or didn’t get enough clients/customers.??

Overhead fixed costs can negatively affect the business; keeping them low at the start is the key to achieving higher profits and financial sustainability for the start-up!?

The best thing about making mistakes is that you can learn from them! They don’t even have to be your own - we're always here to learn from others! Stay tuned for more useful articles on Entrepreneurship & Wellbeing.