To live, survive and grow, we need money. A business is quite like a human entity, the only difference is, a business consumes a much larger sum of money to grow. In current times, where the world is filled with entrepreneurs and angel investors, getting proper investment, is not much of a task. But, what happens after you get the investment? You can't just go about spending in as per your will, because you need to ensure that every buck invested, offers you a suitable return. We have list the top 6 financial mistakes, that most startups face and go into loss. Read through and avoid them, thoroughly.
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1. INVESTING WITHOUT FORECASTING
Running a business, is nothing but taking risks. You invest, and you expect a profit. But, if you do not spend time before investing, you will not get your money's worth. Sit with your financial advisors or take the initiative yourself, and analyze the market. Understand the demand rate and invest accordingly, to ensure optimum supply of your product or services.
2. NOT COMPARING RIGHT
Mostly, we put in capital and as soon as we get a profit, we are content. But, this does not necessarily mean you are operating up to the standard. Compare your company's present performance with past year's performance level and if you do not have any, compare with other companies in the same industry. This will give you an idea of how much you have improved or deteriorated.
3. UNNECESSARY DIVERSIFICATION
It is usually seen, that when companies see that they their product is doing well in the market, they try to have a product mix and diversify into other segments. There is no hard and fast rule, stating that this might go wrong. But, when you are investing the money you have incurred from your product on a new product, you have to be very well sought out, because this money could have been invested in the same product and might have got you a better profit percentile. When, you are new in the market, first go for creating a market foothold, then when you feel your product has reached maturity or is beginning to go obsolete, you can diversify, to protect your company from loss.
4. LACK OF PROPER FINANCIAL GUIDANCE
Most startups are created on ideas hatched by entrepreneurs. But, all entrepreneurs do not possess proper experience. Thus, they misunderstand finance as the area which is concerned with keeping track of cash inflows and outflows. Finance, is the core foundation of a business. With proper financial guidance, a firm can get a high rate of return on their investment, but with inadequate advice, even after spending a huge sum of investment, the company may go in loss. So, don't try to save money while hiring for your firm's finance department. Hire people who have had prior experience in the same field as has the ability to take your bootstrap company towards a better future.
5. LACKING A SAFETY NET
Nearly every day, a new startup pops up in our country. But, a big reason why they disappear as fast as they appear, is because of their incapability to sustain loss. Every business, at one point of time faces loss. But, if you do not have cash set aside, there's no way to omit this deficit and move forward. So, as soon as you start your business, start keeping money aside, for that rainy day. It's like what families do, invest in mediclaims to ensure they can get money when they need it the most.
6. GOING EXTRAVAGANT
Every owner wants to have a good looking office, showcasing a good lifestyle and work environment. But, going deep in your pockets to look good, in reality will turn out to be too bad. Remember, that whatever you spend on your office decor or other business purchases, like furniture or land, are long term assets. So there's no way you will get a return on that any time soon. So if you invest a lot on that, it might effect your operating expenses.
Think thrice, not twice before spending every buck. First think, would this money help your business in any way. Then ask yourself,how soon and how much would it affect. And lastly, see if this money indeed has the ability to give you profit in this market.