by Monika Beck | Featured Contributor
You dream of succeeding in business. Who doesn’t? Yet, most businesses fail, and many of them fail for financial reasons.
Money is not really the problem. The problem is bad decisions about money.
You can start a business with little or no money. You can start a business being poor. Your business can survive on little revenue. But, it won’t survive bad financial decisions.
If you want your business to thrive, avoid the following financial mistakes:
Incorrectly funding your business.
Every business needs some capital to start. Where that capital comes from matters. Funding your business with credit cards, retirement savings, or your kids’ college funds are all bad ideas. They are simply too risky.
You have many options to fund your business without risking too much:
- Find a cofounder – Businesses with cofounders are more likely to succeed anyway. If you can find one that has money to invest is a win-win situation.
- Save money – I know it’s not very sexy, but there is no risk there. It also shows that you have financial discipline.
- Ask friends or family – Many businesses were started by loans from friends and family.
- Crowdfunding – It enables you get your business financed without giving up equity.
- Peer-to-peer lending – Prosper and Lendingclub are popular peer-to-peer lending sites.
- Microloans – They are normally fairly small amounts, under $50K, usually offered by nonprofits.
- Angel or VC – A small percentage of startups get angel or VC financing, but you will have to give up equity for the money.
Avoid long-term contracts.
Long-term contracts are long-term liabilities that make your business vulnerable.
Long-term contracts are common with real estate leases. A long -term contract could really hurt you if your revenue takes a hit. A year into a five year lease you might need less space but you are stuck in a long-term contract. Most landlords will not let you out of the lease and it could really hurt your company’s profitability.
A smarter solution is to sublease or rent month-to-month. You might have to pay a bit more, but you have the freedom to move to a smaller place if you must. You can easily find month-to-month opportunities on Craigslist. There are many businesses that made the mistake of leasing a larger space they need. Their loss is your win!
Successful entrepreneurs keep their options open. Avoid long-term contracts.
Hiring too fast.
It’s exciting to hire employees. It’s proof that your business is growing. It tells you that you are going in the right direction. Employees are a fixed cost, and you have to pay them even when your business slows down. You might have some busy months, followed by a slow quarter.
If your business is small you might be better off working with contractors instead of employees. It is easier to scale down with contractors than employees. Working with contractors gives you greater flexibility. Later on when your business is humming along, you can hire full-timers.
The bottom line.
The more financially dumb decisions you make the more likely will your business fail. Remember that is isn’t because of money that businesses fail, but because of bad financial decisions. Minimize your chances for failure and avoid financial mistakes.
Savvy web designer with a twist – Monika Beck with Webene – San Diego, CA.
Monika Beck is passionate about website design, web programming, ecommerce, and building businesses. She is a serial entrepreneur and the cofounder of Success Harbor a website dedicated to help entrepreneurs succeed. Success Harbor interviews successful entrepreneurs and publishes topics relevant to business owners and aspiring entrepreneurs. Monika started Success Harbor with her cofounder in order to ease the life of entrepreneurs through original research, tips and unique content. Monika is also cofounder of Webene, a website design and online marketing firm based in San Diego, CA. Webene specializes in mobile-friendly responsive websites built on the WordPress platform. Monika loves playing classical music on the piano.