Most start-ups are akin to a roller-coaster wave. There’s a sudden rise followed by a great fall. While there are many reasons that can cost an entrepreneur his/her dream, financial hara-kiri continues to be one of the most common success obliterators. Why is it so? Why do otherwise sharp and intelligent entrepreneurs become short-sighted when it comes to making stable financial decisions? Let’s explore.
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Hiring too early
While going gung-ho in hiring is a no-no, delaying it can also dampen your finances as it might result in a poor quality product due to lack of manpower. Either of the decisions can cost you a lot of money – too many salaries or clients. Therefore, you need to be really careful with who and how many you are hiring.
Lack of organisation
John Wedding, MightyBargainHunter.com keeps it simple, “Disorganization is toxic.” And if push comes to shove, disorganisation can also be death. Planning in an orderly fashion can help you anticipate future challenges and develop strategies to counter them. A disorganised start-up is forever paying for its lack of planning skills, either by layoffs, delayed hiring or by taking on hefty loans that ultimately break its back.
Giving into temptations
You know you can do without that gigantic couch or that lava lamp. But if you still splurge just to join the clique, you might have to compromise on say, hiring, at a later date. Most start-ups, in an attempt to stand out in the eyes of clients and investors, spend too much in ‘doing up’ their offices. Well, however enticing the next centre table might feel, it’s best to swallow the greed. Small, small expenses soon add up and before you know it, your bank balance would have evaporated into thin air.
Most successful startups began their functions in a garage, a dinky hotel room or even on a wrinkly dorm bed. Let that thought inspire you every time you feel like giving into luxurious temptations.
No financial mentor
A financial mentor is someone who can guide you through the turbulent times of financial crisis or can altogether help you set up a guard against them. Not having one, or having an underqualified one is going to the demise of the startup even before it could reach its potential.
Lack of an emergency fund.
Taylor M, Chairman Sledge & Company encourages start-ups to create an emergency fund. He calls it, “a short-term cash cushion that is separate from the money that sits in your operating accounts.”
Building an emergency fund is nothing but disaster management. It’s like the piggy bank which is broken only in the times of unseen or utmost crisis. Thus, it is important to prune a certain amount of your finances every month and put in the emergency fund.
A strained relationship with the account book.
As the founder(s), you must train come to love all aspects of finance. You must train yourself to dig into your account books once every day, quite like the shopkeepers of yore. Acquaint yourself of it numbers and figures to make sure there are no unwelcome surprises. By creating your entire financial model around the emergency fund will also help you sharpen and economise your approach towards the regular monthly budget.
Confucius said, “By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” To think that you will be able to avoid challenges in your journey as a start-up would only make you more vulnerable to them. While reflection and imitation (borrowed learning, in this case) can help you along your path, experience alone will guide you to your destiny.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)