Tag Archives | financial tips

5 Financing Mistakes Commonly Made in a Start Up

By on February 19, 2013 in Cash Flow & Finance, Guest Articles

Guest Article

5 Financing Mistakes Commonly Made in a Start Up 300x300 5 Financing Mistakes Commonly Made in a Start UpWhen you start a startup company, money can be tight, and it is important that you have a plan in place from the very beginning to ensure that you remain fiscally responsible with your finance plans, particularly during the very beginning. Unfortunately, most startups that run into financial problems do so because they do not practice proper financial planning and accounting, and as a result end up making some very serious financing mistakes that can lead to the downfall of a once promising business. Five of the most common financing mistakes that are made by startups include:

Not Budgeting For Operating Costs.  One of the most common mistakes made by startup companies is not doing enough planning for operating costs.  Many new businesses get ahead of themselves, planning their advertising costs and other more glamorous expenses while overlooking the basic operating costs that determine whether or not their business will even be viable in the long term. Make sure that, if anything, you overestimate the amount of money you will be spending on day to day operating costs, because underestimating those costs could be very detrimental to your business.

Overcharging Or Undercharging.  Another common mistake that is made by many startup companies is pricing their services or products far too high, or far too low.  Ideally, every startup company should have done enough market research to know the perfect price for their items, but that is not always possible for a company that is working with extremely limited funding.  Setting your price too high or too low, in the very beginning will stick with those that come across your service. If you have to drastically raise your prices, they will be less likely to buy knowing that they had a better deal on the table previously. If you lower your prices drastically, consumers will likely feel like they do not know  what your service or product is truly worth.

Finding The Right Salary Amounts. In the beginning, many startup companies refrain from paying themselves or many of their founders a salary so that all of the revenue that the company generates can be invested back into the company. But everyone needs money for day to day expenses, and finding the right amount to pay everyone can be difficult. Figure out what your startup will require in terms of operating costs and investment expenses, and pay yourself a reasonable salary based on those numbers. Try to pay fairly based on the amount of work that is done. Pay yourself and other employees enough to live on, but not as much as your business can afford.

Forgetting a Rainy Day Fund. Every business will eventually run into a situation that requires making a large, unexpected investment in order to keep things running smoothly. This is especially important during the startup phase.  What if the software that your company uses to manage day to day operations encounters a serious, unexpected bug? Or if you have to invest a large amount of money in manufacturing in order to meet your first big order from a new client? Make sure that you have funds set aside for these types of situations and can cover large unexpected costs with as little interference in day to day operations as possible.

Hiring the Wrong People. When your business is on a strict budget, you have to look at where you can cut costs whenever possible. The simplest way to get the most out of every dollar you spend is to ensure that you hire the right people. Find people that excel in what they do, or are able to cover multiple roles under a single salary. Hire people that are as invested in the success of the startup as you are, and not people that are just looking for a paycheck.

StevieClapton 210x300 5 Financing Mistakes Commonly Made in a Start UpAuthor Bio: Stevie Clapton works for FastCash.org who provide financial advice and online personal short term loans.

“Poor Or Rich Directions” image courtesy of Stuart Miles / FreeDigitalPhotos.net

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Give Your Business Finances a Fighting Chance

By on February 22, 2011 in Cash Flow & Finance, Guest Articles

finance fight 150x150 Give Your Business Finances a Fighting ChanceGive Your Business Finances a Fighting Chance, by Morgan Leu Parkhurst

Whether you have owned your business for years or plan to open your doors for the first time next week, there are a few things you can do to save money.  The Joneses of the business world will have you believe that if a business looks wealthy then it must be.  But lessons of the last few years tell otherwise.  Do you want to give your business a healthy chance at survival?  If so, below are a few expenses worth postponing (or simply ignoring altogether) until your cash-flow is plentiful.

  1. A luxury car.  I have met countless small business owners who insist on driving fancy cars to “look” established.  They operate under the impression (whether they know it or not) that the car they drive is somehow more important than the value they offer.  How sad.  If you can’t afford a luxury car, that’s okay.  Lead with your strengths, focus on the needs of the other person, and let the quality of your business show how established you are.  As for those business owners with fancy cars, well quite a few of them aren’t in business anymore.
  2. Tailored suits.  Like the car, the tailored suit implies wealth but doesn’t ensure it.  Do you habitually tell clients and prospects where you buy your clothes?  If not then you’re in luck.  No one will ever know your suits aren’t tailored.  Most won’t care.  They have better ways to occupy their time, like thinking about how your proposal affects their bottom line.  If they do care, you probably don’t want them for clients anyway.  Stick with a few basic pieces for important meetings, save some money, and leave the fluff to someone else.
  3. Dining at restaurants.  I love dining out as much as the next person.  But it can be a real cash guzzler on your business and personal finances.  It’s best to keep it in check.  To stretch your dollars a little farther, suggest coffee meetings instead.  You’ll be amazed at what you can save throughout the year.  Likely no one will notice the shift.  And if they do, they will probably secretly thank you for it since they could be taming their expenses (and waistlines) too.
  4. Extensive business overhead.  Do you really need multiple landlines (in addition to cell phones), fax lines, and top-of-the-line printers as well as other operating expenses?  If not carefully planned for, these items can eat away at your financial stability.  If you can’t afford it, don’t buy it.  There are often low-cost alternatives to common operating expenses.  For example, instead of paying for another landline for your fax machine, set up an email fax account in its place.    
  5. Business debt.  This one is tricky.  While we know we should keep our personal debt under control, we don’t always remember that for our business.  Every business “want” turns into a business “need,” and we end up taking on more debt than we should.  Perhaps you can’t run your business without a loan.  But do be careful how much you borrow.  Even if the business closes, you could still be personally liable for the remaining balance owed.  Ouch.  Work with organizations like SCORE and SBA to assess how much financing you really need, and whether you have the cash-flow in place to pay for it.

MorganLeuParkhurst 150x150 Give Your Business Finances a Fighting ChanceGiving your business finances a fair shot at winning isn’t always easy.  But it is worth it.  Let the love you have for your business energize you when you make sacrifices.  It is that love that will fuel you as you succeed at being your own boss.   

By day Morgan Leu Parkhurst helps individuals put the pieces of their marketing puzzles together.  By night she teaches marketing communications to aspiring entrepreneurs. Reach her at sharpmindmarketing.com or on Twitter at @Morgan_LP.

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How Do You Make Business Decisions?

By on September 6, 2010 in Cash Flow & Finance, My Recommendations

calculator pen iStock 000005303068XSmall 300x199 How Do You Make Business Decisions?It’s great to have a nice website, a regular sales process and glossy business cards for your small business. All of these things steer sales, and sales is the engine that drives business. You must look credible in order for a corporation to do business with you, and you must have relationships to make a sale, and people must know where to reach you so business cards are important–but before you make any decisions in your business–you need up-to-date financial information about how your business is doing under the hood. 

By the 15th of every month, you should have three financial statements which should include a balance sheet, income statement, and a statement of cash flow. These statements will outline the previous month activity including what sales were made, who has paid you and who you owe, and how much cash you have on hand to make it through the next month.

Once you put a process in place to generate monthly financial statements (such as hiring a bookkeeper to reconcile your accounts monthly and generate the statements), get into the habit of referring back to your financial statements and annual budget for information. Do not make business decisions based on what the account balance is online. Also, do not make decisions based on what you want or think you need for your business. Ask yourself or your staff WHY three times before making any purchases. 

Always refer back to your budget and see what it says you have planned to spend, before committing to purchasing equipment, hire consultants or plan on attending any conferences.  Also never purchase a booth at a trade show the first year you plan to attend–walk the show the first year. Talk to the other vendors about whether they got their money’s worth.  It costs a lot of money to attend conferences–be sure it’s the right place to engage your niche target customer.  Here are four financial tips to keep in mind in your small business.

  1. Use a budget–Manage your business with an annual budget. In October, start working on the budget for the following year.
  2. Monitoring profit margins–It’s fine to know your gross revenues, but in the end, it’s really all about the profits you keep.  In every sale, know how much money is for you.
  3. Understanding the cash position daily–Cash is king. A business with contracts and no cash will soon be out of business.
  4. Know your numbers by the 15th of every month–Do not wait until tax time to deal with your financial statements.  Have them complied monthly, so that you can know where you stand as a business.

 What other financial tips should small business owners keep in mind? Add a comment below.

For more tips on starting or growing your small business subscribe to Melinda Emerson’s blog at www.succeedasyourownboss.com

ecover 1 203x300 How Do You Make Business Decisions?Melinda F. Emerson, known to many as SmallBizLady is one of America’s leading small business experts. As a seasoned entrepreneur, professional speaker, and small business coach, she develops audio, video and written content to fulfill her mission to end small business failure.  As CEO of MFE Consulting LLC, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing. She has been featured on NBC Nightly News, the Tavis Smiley Radio Show, in the Wall Street Journal, Entrepreneur and Black Enterprise Magazine. She hosts #SmallBizChat weekly on Twitter for emerging entrepreneurs and publishes a resource blog www.succeedasyourownboss.com  Melinda is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media 2010) 

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