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3 Major Financial Mistakes New Entrepreneurs Make… And How You Can Prevent Them

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No matter what you might read on the Web, starting and running your own business is a difficult and complicated process. It is staggering just how much effect a seemingly tiny and inconsequential detail can have on your company and its potential for success. This is true across all aspects of entrepreneurship.

For today, let’s just look at the biggest and most common financial mistakes entrepreneurs make (and what you, the young upstart, can do to prevent them from impacting your company):

1. Where Is the Money Really Coming From?

Today, there are lots of ways to get funding for a business venture. You can Kickstart it. If you’re creative, you can start a Patreon. You can look for micro investments or angel investors. You can even use your own money. Most of the time, though, you’re going to be shopping for traditional investors.

Attracting investors can be a challenge and, when you do find someone who wants to give you a stack of cash to pursue your dream, it’s normal to want to take it and run…but don’t! It is vitally important that you understand where your investment money is really coming from.

We go into more detail with this in our post “Who Holds Your Purse Strings?” Make sure that your investor isn’t backed by someone or something that makes your stomach churn or that could create a conflict of interest for you down the line.

2. Long Hand Money Tracking.

Most entrepreneurs are type-A personalities so don’t ever feel ashamed at wanting to manage every single tiny detail of your financial recording and reporting yourself. A lot of entrepreneurs, especially when they are just starting out and have a low sales volume (and low overhead), keep track of their money with simple excel spreadsheets.

As your company grows, you cannot continue to do things this way. For one thing, you’re going to be too busy to do this accurately. For another, you’re going to want to hire people to take care of different parts of your company’s finances (for example, your payroll person might not be the same person who does your accounting or taxes).

You might want to invest in financial reporting software so that your accountants can work collaboratively without having to worry about platform compatibility. Using one recording and reporting program helps make detail and money tracking easier for everyone who has anything to do with your company’s finances.

3. Focusing Solely on Sales.

A lot of new entrepreneurs make the mistake of thinking “if I sell a bunch of product, that means I’m successful!” This is not automatically true. In business it isn’t really how popular your products or services are, it’s how much profit you can make (or, even better, retain). If you’re only breaking even you aren’t technically successful. If you end up in debt it won’t matter that you sold a million products, your business still missed its mark.

Pay attention to your company’s costs as well as its earnings. You want to be bringing in more than you pay out. Make sure that your average revenue per customer (ARPU) numbers are good.

Note: This is a hole that many people find themselves in when they run kickstarters — they focus on the amount raised not how much their project will realistically cost.

These are just three of the biggest financial mistakes that new and young entrepreneurs make when they are first starting out. They are not, however, the only financial mistakes that will be made.

What was your biggest financial mistake when you were getting started? What do you wish someone had told you in the early days?

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