Launching a startup is an emotional experience and sometimes a gamble that can make you forget the reality around you, especially on the financial front. Some startup founders often get carried away with the influx of new cash and the excitement of creation. But if you cannot get a firm handle on the uninteresting things like budget, accounts payable, legalities, taxes, loan repayments, salaries, etc, your business enterprise can quickly transform into a financial catastrophe. To avert such a situation, the founder of a new business should be wary of some of the common financial mistakes committed by first-time entrepreneurs.
One such mistake is to mix personal and business funds. If personal and official expenses or incomes are not indicated separately in the books of accounts, it can, later on, lead to legal, accounting, and taxation-related imbroglios. Another mistake often made by first-time entrepreneurs is not sticking to a planned budget and overspending on the hopes that things can be set right once earnings start rolling in. Other similar slipups often made by startup owners include not keeping aside an apparent cash reserve for contingencies, not maintaining detailed accounts, taking larger commercial loans than necessary, hiring more staff than needed, etc.
Some other lapses that all entrepreneurs should avoid are launching a business venture with insufficient cash, under-pricing products or services in desperation to gain market share, not spending enough on marketing and sales funnels, not planning adequately to ensure a positive cash flow to take care of all the financial obligations, and not availing the services of finance professionals. Buying things that a startup doesn’t need, just because they look good and might come in handy one day, is also a widespread blunder, as also not accounting for one’s own salary or the costs of your personal time and labour. Finally, even if you decide to draw a salary, paying yourself too little or too much is another major faux pas you need to avoid.