one of the most exciting and potentially rewarding times to go ahead with establishing
a start-up. As we continue to move out and away from the most recent financial
crisis, there is a school of thought that suggests there is no better time to
take the first, bold step towards meeting one’s business ambitions and turning
an exciting new idea into a reality.
Even if this is true,
being a first-time entrepreneur is rarely easy. It is not enough just to have
the good idea. This needs to be coupled with a passion to make it happen and
supported by a sound business sense. This third element is often the most
challenging because while someone may love what they do and genuinely believe
in their product or service, managing finances does not come naturally to
everyone. Also, it is an unfortunate fact that however good a business concept
is, it will fail without the right management of the numbers.
With that in mind, it
is absolutely essential for entrepreneurs to be confident that they are
handling their money in the most secure and effective way. Finance, and
business finance in particular, is a hugely complex area and one with an
enormous potential for loss. The risks are high and it is easy to make
mistakes.
What should a new
business owner be on the lookout for? Here are a few of the most common
mistakes, and some helpful hints and tips on how to avoid them:
·
Uncontrolled
spending. New
business owners need to get organised with regard to what they are shelling out
for by taking a long, hard look at their expected overheads and asking
themselves what they really need, and what is unnecessary luxury. Such costs
should be kept to an absolute minimum, at least to start with, with investments
made only in the essentials; otherwise such costs can spiral out of control.
Even little costs, the miscellaneous expenses, soon add up, and it is very
often these that cause the biggest problems as they tend to be unexpected and
therefore not included in the business plan. Entrepreneurs need to keep
comprehensive lists of all expenditure and always plan for costs to be bigger
than expected.
·
Business vs personal.
Almost
by definition, entrepreneurs have a personal interest in their business, but it
is hugely risky to allow the lines between business and personal expenses to become
blurred. Business expenses are invariably higher than personal expenses, and
using a personal credit card to pay for business activity, for example, is very
risky. The result can be huge personal debt and a severely damaged credit
score. On the flip-side, using a business credit card for personal expenses can
also complicate things and even have tax implications. It is far better for
start-up owners to keep the two areas totally separate, with the division
backed up and carefully illustrated through clear and detailed records.
·
Hidden charges. In the
interests of keeping costs down to an absolute minimum, it is critical to read,
and then re-read at least one more time, the small print of any kind of
financial arrangement in order to spot any hidden charges. If a charge is
hidden, there is a good chance it is unnecessary and possibly even being mis-sold.
One of the most common examples of this is PPI (Payment Protection Insurance),
which is something that business owners need to consider very carefully before
signing up to as they may not need it. New business owners who think they have
already purchased such products, such as MBNA PPI, are
strongly advised to check through their records and look into the possibility
of claiming a refund.
·
Unnecessary
hiring. The
thought of employing people is a dream for many entrepreneurs, and often a key
part of their ambitions. There is therefore a temptation to move too quickly
towards hiring their first employee. However, recruitment is a major expense,
as is taking on someone and paying them a salary and all the other costs that
come with having employees. Hiring should therefore be avoided until it is
absolutely necessary, otherwise the expense will almost certainly far outweigh
the return. Psychologically and emotionally, it can feel great for a business
owner to have people working for them, but in the early stages of setting up a
business, the smarter thing to do is achieve as much as possible without
incurring the cost of running a workforce.
·
Be
relentless. Entrepreneurs invariably start out with the best
intentions and will devote a lot of energy and attention to setting things up
in the right way. The novelty soon wears off, however, and when there are
always at least a hundred other things demanding one’s attention, it is easy to
let the difficult and less exciting things slip. This must never be allowed to
happen with regard to finances. Getting the right systems, processes and
procedures in place is one thing. From that point onwards, checking the books,
recording expenses and making sure everything adds up should become part of the
daily routine and business as usual. There is no magic solution, shortcut or
workaround here. It is simply a case of developing good habits and regularly
holding oneself to account for doing the right thing and doing it regularly and
diligently.
In the excitement of
setting up a new business, it can be easy to ignore the detail. The minutiae of
each logistical step that must be taken to get a start-up off the ground is
challenging in so many ways, but to neglect this area is a big mistake – so big,
in fact, that it can make all the difference between the success and failure of
a new business.
Fortunately, there are things
that can be done to avoid this. Learning from the mistakes that others make and
knowing how to avoid these mistakes is a great first step, and something that
every new entrepreneur should consider as a priority in order to give
themselves and their business the best possible chance of success.
Source: CSSmania