Startup financial mistakes are one of the reasons entrepreneurs fail. The challenge is not just acquiring funds but also managing them properly.
Cash Shortfall
New businesses face the problem of running out of money when starting up. This problem is also experienced while in operation. The main causes of this is underestimating costs and not paying attention to cash flow.
Entrepreneurs are an optimistic bunch but this is no excuse to undervalue costs. You see startups go under barely two years after launch. This is because of wrongly estimating how soon success will come by in effect affecting estimation of cost. Startups should follow the personal expense advice and give themselves room to maneuver financially. In the same way, we should work with 75% of our income so too should entrepreneurs overestimate costs. Not to the effect of holding too much idle cash of course.
They should also strive to avoid insolvency. This is ensured by keeping up with receipt of payments and meeting expenses as they arise.
Record Keeping
Record keeping is boring and we all hate Math. But it is an important tool in keeping track of your money. Think of how small expenses build up and eat off a large chunk of your income.
The startup’s books should be updated and reviewed regularly to avoid any hidden costs going past you like a good joke. Alongside this, entrepreneurs should stay true to their budgets to avoid the aforementioned problem of cash shortfall.
Burning Cash
This especially affects startups when they receive their finally receive that first fund. One can fall to the delusion of thinking they have too much cash and go splurging. Don’t buy a car or involve yourself in unnecessary spending. You will soon realize the folly of wasting all that capital. Infact be a good business person and try to minimize costs while looking for the best value.
Pricing
Lack of expertise is a core problem for first-time entrepreneurs. One area they lack is in determining price for their commodity. Many establish price straight from lessons in the lecture halls. I’m talking about setting prices at the margin. “This is the cost per unit therefore price will be Shillings x.”
Too bad things are not that simplistic. Consider factors such as market positioning. Is your product low-cost or is it high-end. This will then lead you not just to determine price but pick out the best way to deliver your product to the, intended, market.
Risk Management
Africa is a funny place. Buying a fire extinguisher means you want your house to burn down. It’s just not culturally instilled in us to prepare for rainy days (figuratively and all). Many startups will fail because the entrepreneur did not protect the business and did not protect herself. An emergency or contingency fund will be an alien or even taboo concept.
Budget for liability, look after yourself and your employees and do insure your business from the range of possible risks. It’s better to have loved and lost than never to have loved at all.