Starting a business is equal parts of excitement and anxiety. On the one hand, you’re ready to chase your dream. On the other hand, you’re worried about the ramifications of failure. It’s important that people understand how to put themselves in the right financial situation to be successful.

Knowing the state of your financial affairs back to front is one of the best ways to make sure the cash keeps flowing. Staying on top of your finances means you can avoid unforeseen business debt and have enough money to invest in and grow your business.

This article contains some tips to help you avoid some of the common financial mistakes entrepreneurs make when starting a new business.

• 10 Financial Tips for Entrepreneurs Launching a Startup
• What are the 9 Mistakes of Entrepreneurship?
• What are the most Important Financial Skills for Entrepreneurs?
• How do you Manage Startup Finances?
• What are the Top 5 Reasons Businesses Fail?

10 Financial Tips for Entrepreneurs Launching a Startup

Here are a handful of money hacks that have helped countless entrepreneurs get off on the right foot.

1. Understand Your Loan Options

Very few people start and grow successful businesses without any sort of financial help. Some entrepreneurs need a little more assistance than others, but the majority of small business owners have some measure of help – and it’s usually financial in nature.

Read Also: 17 Reasonable Ways for Entrepreneurs to Save Money

If you need some money to get your business going, it’s important that you understand your different loan options. At first, it might look pretty confusing, but remember that loans are like products. Each product has unique features and the goal is to find the one that best serves your needs.

When it comes to term loans – which are often used to generate long-term growth – do your homework and understand the differences between secured/unsecured, short-term/long-term, fix/floating interest, and repayment options.

2. Cash flow management is key

Most startups fail for a variety of reasons, but one is far more common than others — running out of money. You need to know where every single dollar is coming from and where every single dollar is going.

If you don’t stay on top of your cash flow, you are going to put your business in a very dangerous position. It doesn’t matter how good your idea might be when you run out of money you hit a brick wall. Establish a budget and stick to it.

3. Track and monitor all spending

With a new startup, there are going to be expenses coming at you from every direction. Hiring a full-time staffer to handle the books in the beginning isn’t very budget-friendly, so use accounting software to remain organized.

Not only will this help with cash flow management, but it also makes it much easier when tax time rolls around every year. As you grow and the accounting becomes more complex, you will need to consider hiring a professional. 

4. Limit your fixed expenses in the beginning

In the beginning stages of a startup, keeping your expenses low is the key to longevity. You don’t need a huge elaborate office in the heart of your city or fully catered meals three times a day.

Operate thin so you can allocate the majority of your capital to growth, which will enable you to one day implement any perk you want. Too many startups focus on the wrong things — like fancy offices and over-the-top amenities — and forget that generating revenue should be their top priority.

5. Safeguard Personal Money

While there may seem to be little division between your work life and personal life, it’s imperative that you create some separation financially. If you’re running your business out of your personal bank account, you’re walking a very fine line.

Go ahead and open up a separate business account. It doesn’t matter if you’re spending small amounts or writing checks with lots of zeros, avoid co-mingling assets and you’ll sleep much easier at night.

“Experts recommend opening a separate business credit card and business bank account as well as putting an accounting system in place to track your expenses,” says entrepreneur Jennifer Woods. “Accounting software such as QuickBooks is a good low-cost option but if the business requires more extensive expense tracking it might be prudent to hire a bookkeeper.”

6. Calculate a Break-Even Point

Knowing your break-even point – both on a monthly basis and overall – is extremely important. This allows you to make strategic choices that are based on the numbers, as opposed to decisions that are based on feelings and emotions. Once you understand your break-even point, you can shuffle things around until the numbers work. If you don’t know this tipping point, you’re essentially playing a guessing game.

7. Every minute of your time has monetary value

We are going to keep this short and sweet: time is money.

Nothing has more monetary value than your time. You only get so much of it every day, so take that into consideration when you are planning your schedule and day-to-day duties. Every second you spend doing something unrelated to your business is time (and money) wasted.

8. Focus on customer acquisition

Without customers, you have no business. The sooner you figure out how to acquire customers and scale, the greater the chances are of your company making it. Once you identify different acquisition channels, work on optimization to lower your costs.

It’s impossible to test every possible acquisition channel at first, both in terms of time required and cost, so focus on the most lucrative opportunities. Once you successfully scale those, you’ll have the financial capability to explore other channels.

9. Have a Team of Advisors

“One big difference I see between startups that build a framework for success and those that get isolated is the ability to nurture talent,” executive Jyotsna Pattabiraman says. “Many startups believe that the way to get that expertise is by hiring a senior consultant. Yet others believe that they can figure it out through trial and error. Both approaches are expensive, one in terms of cash and the other in time.”

So, what’s the correct answer? Pattabiraman and others point to the need for an advisory board. Advisors are different from consultants in that they don’t come and go for specific projects or needs. They stay on board for the long run and will push you in the right direction.

As a result, there’s a lot of continuity. And while advisors can help you with a lot of things, they tend to supply a lot of financial expertise, which can be invaluable in your pursuit of growth and stability.

10. Make sure you pay yourself

Your hard work and dedication to your business alone isn’t going to put food on your table — you need to pay yourself. While you don’t need to compensate yourself with a big fat salary in the beginning, make sure you pay yourself enough to live.

Give yourself enough to live comfortably and focus on building your business. When you eliminate personal financial stress, it allows you to stay ultra-focused on your business. You can’t eat ramen noodles forever. Give yourself some padding and comfort.

Bonus tip: Establish financial goals

Rather than just say, “I want to build a multi-million dollar company,” you need to break financial goals down into reachable and measurable ones. 

Monthly, weekly or even daily revenue goals allow you to stay on track and make the adjustments necessary for constant growth. You can even set milestones to hit along the way, giving you a lot of smaller goals to constantly hit. Knocking out little goals can give you the confidence needed to keep powering through the entrepreneurial journey.

What are the 9 Mistakes of Entrepreneurship?

A big part of starting a business is having a plan then having the discipline to act on it. Being part of a startup isn’t always glamorous, and often requires simply submitting yourself to the process.

In his book The Lean Startup, Eric Ries makes this point better: “I have learned from both my own successes and failures and those of many others that it’s the boring stuff that matters the most.

Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”

Taking steps to avoid mistakes frequently made by new entrepreneurs is a part of this process. Here are nine mistakes you should avoid when starting a new business:

1. Not spending enough money or spending too much money

As a new entrepreneur, money is likely to be one of your biggest concerns. Pre-launch cash flow is likely to be close to nil, so making and saving money will usually take priority over everything else.

There are two mindsets I tend to see among new entrepreneurs: Either “You have to spend money to make money” or “I’ll spend the bare minimum until I have some decent cash flow.” 

Both of these attitudes, when taken to the extreme, can be harmful. Spend your startup cash wisely, but don’t be afraid to invest in good people and quality products. This will bode well for you in the long term.

2. Thinking you have no direct competitors

The excitement about a new product or business can often lead new entrepreneurs to think they really have no direct competition, or that their product is so head-and-shoulders above those of their rivals that they’re in a category of their own.

In reality, it’s extremely rare to have no direct competitors. Unless you’ve invented a completely new product, there will be someone who already has market share in your niche. Do your due diligence to find out what these companies are and how you can differentiate your business.

3. Making hiring decisions based on cost

This is closely tied to number one, but is so important it deserves to be mentioned separately. When funds are tight, it’s tempting to skimp on the cost of new hires. The problem with this strategy, however, is that you’ll end up paying in the long run.

Low-cost employees and consultants are usually low-cost for a reason — they are more likely to be inexperienced, unskilled or unreliable (or all three).

4. Not setting attainable goals

New entrepreneurs can be so enraptured by their “big idea,” they work without a solid plan. But the reality is you must set realistic and attainable goals in order to succeed.

Make a point of setting both short- and long-term goals, and make sure they’re specific. Don’t just say, “I want to make $1 million this year.” Set a reasonable goal, and then determine what specific steps you need to take to reach it.

5. Not thinking about marketing

“If you build it, they will come.” This is a common belief (sometimes conscious, sometimes not) among new entrepreneurs. They think that their products are so revolutionary that they can just rely on free PR and word of mouth.

In reality, the vast majority of startups will need to invest heavily in marketing. This may include SEO, content marketing, PR and paid advertising. Take a look at where your competitors are spending their marketing dollars, and ask yourself how you can compete and differentiate yourself.

6. Having too small margins

Having a healthy profit margin will be critical to your success. Setting it too low now will make life infinitely more difficult for you in the future — your customers likely won’t be thrilled when you need to raise your prices later on.

Take a look at your production and operating costs, and determine how much flexibility there is. Can you reduce these costs in the future if necessary? If not, choose a higher profit margin now to accommodate these costs.

7. Thinking you can do it all yourself

In the beginning, it’s common to think that no one can do the job as well as you can. You know your products inside out, and are the only one who truly has the passion to make the business succeed.

But this is not only a recipe for burnout, it can actually significantly impede your success. Having a knowledgeable, experienced consultant or mentor can give you much-needed objective perspective on your business and market.

8. Being incapacitated by fear of “what if’s.”

Robert F. Kennedy said, “Only those who dare to fail greatly can ever achieve greatly.”  Starting a new business is scary, and isn’t for the faint-hearted. Being scared of failure and rejection is understandable, but letting yourself become incapacitated by this fear can significantly hinder your progress.

Recognizing common fears is a great first step, as it reassures you others have been where you are now.

9. Putting your product first and people last

When creating your product and determining your business model, it’s critical that you have a customer-first mentality. Yet many new entrepreneurs are so concerned about making money (understandably) that they forget the key to having a sustainable business — having satisfied, loyal customers who will buy over the long term.

It’s not easy being a new entrepreneur, and mistakes will be an inevitable part of the process. But that doesn’t mean you need to repeat everybody else’s

What are the most Important Financial Skills for Entrepreneurs?

Being an entrepreneur can be extraordinarily rewarding, but your success will depend on more than just offering spectacular products and services. In fact, it won’t even matter what your company is offering customers if you can’t keep your finances in order.

Any entrepreneur hoping to thrive and remain competitive in the long term needs certain financial skills. Take time to brush up on the skills listed below so that you can support your business and help it grow.

Understanding Credit

Credit is one of the most important financial concepts to understand if you want to be successful in business. Your credit rating will determine your eligibility for many financial opportunities, including a large number of loans.

People don’t want to lend money to (or invest in) a business without strong credit because credit is an abstract representation of your financial responsibility. As such, it is vital that your credit is always as strong as possible.

If you are a first-time entrepreneur without much financial history, it will take time to build up your credit. You can’t really rush the process, so the best strategy is to build your credit consistently and avoid any errors that could damage it. 

Monitor your credit score carefully, set your bills to auto-pay to avoid making late payments, and avoid ventures likely to accrue large amounts of interest. If you are in need of capital and do not have the time to build up your credit rating, it is also possible to find lenders who do not require ideal credit.

Learning How to Budget

Your budget should present a complete picture of your finances. Companies that carefully track all the money going into and out of their business are companies that survive. Make sure you are keeping accurate financial records at all times and reviewing them at the end of each quarter. Hire an in-house accountant if you can afford one, or use an accounting service.

Spending Money Wisely

Being thrifty helps to lower your risks, but there are also times when you’ll need to spend money to make money. Put some of the money you make into improving your company. This could involve purchasing new equipment or streamlining your production process.

If you have more than one person in your company, you should also consider investing in your team. Happy employees work harder, and nothing makes an employee happier than being treated well at work. It’s normally much cheaper to provide benefits or a raise for an existing employee than it would be to hire and train a new one.

Finding Investors

Financial skill isn’t just about managing capital—it’s also about finding it. Sometimes, you will need money from outside parties to improve your company or keep it alive. If you are looking for a strategic partner as well as a cash injection, consider selling some of your equity.

To do so successfully, you will need to have a thorough understanding of what your company is worth and have a clear picture of your budget so that you can get a fair deal.

Borrowing Responsibly

If the idea of selling equity in your company doesn’t appeal to you, there are other ways to find money. Entrepreneurs often borrow money to help grow their businesses in times of need.

How do you Manage Startup Finances?

The truth is that managing your startup finances is not as difficult as most people think, because you can actually operate on a low budget while keeping track of your financial activities with technology. For example, a simple Excel spreadsheet can help you to track your cash inflows and outflows. Here are some of the great ways you can manage your startup’s finances from day one:

1. Manage Your Expenses

As a startup, you will be dealing with a lot of expenses from different directions. At the initial stage, hiring a full-time employee to be handling your cash inflows and outflows may not be budget friendly. So, you may have to try using an accounting software to do this task. This will be beneficial to you for many reasons.

Besides helping with your cash flow management, it will also make it extremely easy for you to do tax time rolls annually. But you will need the services of hiring an accounting professional as the business begins to expand, and accounting will become more complex as you grow.

At the start of your business, you will never go wrong by lowering your expenses. In fact, it is important you try to do more with less funding. You don’t need to rent a luxurious office at the heart of your city. Always focus only on things that will take your business to the next level, not on things that you don’t actually need.

2. Maintain Financial Stability

As an entrepreneur, you need to keep your personal and business accounts separately – don’t mix the two. This is necessary so that you can actually save money for yourself, and protect yourself from liabilities resulting from legal or corporate debts.

Define your own job description in the business, and pay yourself your due earnings. Although this is your business, you do need to create a formidable financial plan for yourself. If you don’t know how to get this done, then you can talk to a professional economist, auditor or accountant to assist you with details.

If you are facing severe financial hardships such as debt consolidation or bankruptcy, then you can seek for the services of DMB financial. They will help you out of this situation as quickly as possible. Most entrepreneurs are not aware of this fact, and that is why their businesses unexpectedly go down the drain. You will never go wrong by maintaining financial stability.

3. Monitor & Measure Performance

As a new business owner, you really need to keep a track record of your business’ expenses. Your account department should be updating you with the financial transactions, and that includes both your past and present financial statements. Having an overview yourself is very important because it will protect your future revenue, expenses and cash flow early on.

By staying up-to-date, you will know in clear terms whether your business is overperforming or underperforming. Monitoring your business performance is very essential as it will help you to maximize efficiency.

4. Focus On Your Niche & Delegate When You Can

As an entrepreneur, you are already spending much of your time and energy in harnessing your business potentials. So, you don’t have to make life even more difficult for yourself. All you need to do is to simply focus on your niche; you need to focus strictly on what you are good at, what you know and what you are passionate about.

When you do this, success usually comes much faster. Focusing on things that are not within your niche will make crash and burn quickly. Thus, focusing on what you do best is one of the most important things you can do today. You can delegate or outsource other areas you are not proficient in, such as customer support and administrative tasks.

5. Reduce Overhead

You need to sit down and create a competitive budget for your business. If you are spending too much on renting a luxurious office space, then you can consider sharing an office space or going completely virtual instead. With this, it will be easy for you to achieve more with less funding and run operations on a highly competitive budget.

6. Understand & Plan Tax Payment

If you can’t understand and plan your taxes, then it will be extremely difficult for you to run your business. Often, entrepreneurs don’t personally get involved with tax issues but rather pay whatever amount their accountants tell them to pay. However, if you get into this matter and plan ahead you can reduce the number of business liabilities, save money, and create efficiencies.

Whatever industry your company is in – make sure to focus on the things you really need to strive for instead of the “nice-to-have’s”. Managing your business’ finances from day one will ensure success in the long run.

What are the Top 5 Reasons Businesses Fail?

Entrepreneurs are determined, bold, and competitive. Most of the time, they have the personal qualities they need to run a successful business. Then why is it that an astonishing eight out of 10 small businesses fail every year?

Here are five of the most common mistakes I’ve seen small business make in their first few years of operation:

1. Failure to market online

In an age where “Google” is a verb, if you’re not marketing online, you’re not selling as much as you could be. According to Invesp, 80% of Internet users have used the Internet to make a purchase. Additionally, 81% of Internet users research products online before making a purchase.

In order for your business to thrive, your business must be visible to consumers doing their online research and shopping. SEO work, social media marketing, and cross-selling between all communication channels are all absolutely crucial to increasing online visibility.

Press exposure, press releases, traditional PR, social media, and even print marketing should incorporate strong online components. For example, many companies now incorporate QR codes and social-media icons into their print ads because they know an increasing number of people will look up their business online. The more that SEO activities intersect with marketing efforts, the more visibility you gain.

2. Failing to listen to their customers

78% of consumers will listen to the input of other consumers online more than any other source. Whether or not your primary marketing efforts are online or offline, give your customers an easy and immediate way to interact with you online. They can give you feedback about your product, pricing, and business practices.

In turn, you give them a “chat level” of response that can turn into an ongoing relationship. Your quick and helpful responses to your customers’ feedback and reviews will impress both your current customers and potential customers–those who are looking into online reviews to determine if they want to use your business.

3. Failing to leverage future growth

While many offline marketing efforts have short-term impact, your online marketing efforts can last long term. If you brand yourself effectively, you can grow exponentially. The online marketing you do once can continue to influence your business for years to come.

Read Also: How to Successfully Oversee Multiple Businesses at once

Make sure your online presence, ranging from a corporate website to a company Twitter account, are all in sync with one another in messaging, tone, and overall look and feel. Customers and potential customers will respond well to aesthetically pleasing websites and are more likely to return to your site. Put in a little effort now and you’ll be reaping the rewards for months and even years to come.

4. Failing to adapt (and grow) when the market changes

Perhaps your initial business model can produce a certain level of activity, but if you are not perpetually studying your market and evolving accordingly, you run the high risk of being left behind. Our own company learned this lesson in a very big way, and it has resulted in exponential growth that would not have been possible if we had maintained status quo (in fact, we may not have even survived).

Do your research on your industry and the market in your geographic location. You may find that you can be ahead of trends in your area based on similar companies in other areas. Study how other successful small business owners in your area thrived and incorporate what you find. Taking the time to do the nitty-gritty research will pay off when you are ahead of market trends and standing out in your community.

5. Failing to track and measure your marketing efforts

Web analytic tools can provide you with valuable market research and insight. Use Web analytics to see which activities generate traffic to your business, what your audience wants to know, who’s buying what (and who isn’t) and which customers are leaving your site without purchasing. Being able to measure your online business in action allows you to improve user experience, discover trends among your customers, and boost your numbers.

By eliminating these five risk factors, an entrepreneur is on your way to success without falling victim to the intimidating 80% fails rate of small businesses in their first year of operation.