Are you getting ready to start a new business? Or perhaps you’ve already begun running a startup but are feeling overwhelmed by the financial aspects of your operations? Either way, there are a few common financial mistakes new business owners make when beginning their new ventures.
Many small business owners start new companies without taking the proper precautions to ensure their chance at success. According to the Bureau of Labor Statistics, around 51% of all new businesses fail within the first four years of operation. And, according to a 2016 Global Entrepreneurship report, over half of businesses fail due to a lack of profits and poor financial management.
There are many “right” things new business owners can do when starting a new venture, but it’s usually the “wrong” things they do that ultimately sink their companies.
Below we’ll discuss a few of the biggest financial mistakes people make when starting a new business and how you can avoid them.
1. Doing It All Alone
Of course you’re confident in your product, your business, and yourself – otherwise, you would have never decided to start your own business.
But it’s okay to acknowledge when you simply don’t know how to do something, especially something as integral as your business’ accounting practices. If you’re unsure about how business finance works, it’s wise to seek the outside assistance of professional CPAs or outsourced turn key accounting services.
Don’t risk putting your business finances in the wrong hands. Shark Tank’s Robert Herjavec echoed the wisdom of the great Charlie Munger when he said, “If you don’t know your numbers, you’re going to go out of business… Accounting and finance is the language of business.” You have to understand finance – or know someone who does – to be successful.
2. Getting Financial Advice From the Wrong People
We can’t tell you how many times clients have come to us needing help with their businesses only to discover they’d taken bad financial advice from unknowledgeable advisors.
It’s true that small business owners usually need support from friends, investors, or attorneys to get started. But unless the individuals from whom you’re seeking financial advice are financial professionals, go elsewhere. You’re better off seeking guidance from experts who specialize in optimizing small business finances for success.
Because experienced accountants know the most up-to-date tax codes and laws, you’ll rest much easier knowing your finances are being properly maintained. Skilled accountants will also be able to offer valuable advice based on your specific situation. Ultimately, this will save you time and money.
Pine & Company’s managing member and CPA, Mike Pine, said it best: Would you hire the cheapest surgeon you could find for a life-saving surgery? Or would you seek the best help available to ensure you’re set up for the best possible outcome?
3. Having a Bad Financial Plan (Or None at All)
We know it’s exciting when you finally come up with the million-dollar idea that’ll make your entrepreneurial dreams a reality. However, you must be absolutely certain you have a strategy in the form of a solid financial plan. Your plan should be scrutinized by consultants who know exactly what they’re doing and who have your best interests at heart.
These consultants will go through every detail of your plan with a fine-toothed comb to be sure all your ducks are in a row and that you get off on the best foot possible. Think about it:
Without a sound financial plan, how will you know:
- How much it’ll really cost to start your business?
- How much money you’re making or losing?
- What kind of salary to take?
- How much should you invest in outsourced services, such as marketing?
- When your company should hit cash-flow break-even?
- What will the exact cost of your overhead be?
And there are so many more things to consider, too. Don’t be caught off-guard months after you open your business due to a lack of proper financial planning.
4. Measuring the Wrong KPIs
KPIs, or key performance indicators, are data you can track to measure your business’ performance in various areas.
One of the most common pitfalls made by small business owners is measuring the wrong financial KPIs (or not measuring any at all). For example, are your chosen KPIs truly essential for the success of your unique operation? Or are they simply an aggregate of data with no real impact on your bottom line? How will you know the difference?
Hiring a knowledgeable team of consultants who will not only help you track the correct KPIs but who will also be able to tell you what the numbers mean, is key. An advisor who can translate metrics into actual recommendations for future success is an incredibly valuable resource for your business.
The Bottom Line
Starting a new business can be scary, but it doesn’t have to be. Not sure where to begin?
Pine & Company’s new SuccessWatch service helps to monitor your company’s vital signs to ensure all your business bases are being covered. From taxes, KPI tracking, cash flow management, and more, we will keep an eye out for you and your company.
For more information on SuccessWatch and how it will help lead your business to its strongest performance yet, click here.