If you are just starting a business or buying an established one,
you are prone to commit certain funding mistakes. After all, to err is
human. It's possible, however, that these mistakes can cause all your
efforts to go to waste. It's better to know about such common mistakes
and rectify them quickly, or better yet, not make them at all.
Common Funding Mistakes:
Here are few mistakes that are committed almost by every business owner.
Underestimating the capital amount required: A capital intensive business cannot buy necessary expensive equipment and cannot meet fixed and variable costs unless it has sufficient capital to do so. Most business owners, however, underestimate the appropriate amount and thus face problems later on.
Mortgaging everything: To borrow a large sum of money, business owners use all their savings and put up all their assets as collateral.
Getting a loan from friends: Many entrepreneurs choose friends and relatives as the first option to get a loan for their new venture. If the debt is not paid back on time, relations can get spoiled.
Inaccuracy in financial records: Most business owners don't keep complete and accurate records of their funds and business transactions.
How to Avoid Such Funding Mistakes?
It is not difficult to avoid funding mistakes. All you need do is to be is careful about certain things, like:
Make Quick Decisions: Time is precious. Don't waste time on a deal that you don't find suitable after proper verification.
Analyze Non-Financial Aspects: Apart from financial accounts, also look at the non-technical and non-financial factors that play major roles in the business' growth. Analyze employee relations, customer relations, shareholders relations, etc.
Look at the Cash Flow: Try to prepare a cash flow forecast at least for two years. Make proper provisions for increases in salaries, insurance, depreciation, debt repayment, etc.
Do the Competitive Analysis: You must know what your competitors are doing, what their future plans are and in what projects they are investing. Also, know your USP and analyze it for your profit.
Look at the Weaknesses: You must know what your weaknesses are and how they can be overcome. Also, try to assess the risks involved and make separate arrangements for contingencies.
A business owner should do a typical SWOT analysis to know the strengths (S) and weaknesses (W) of the business and what kind of opportunities (O) and threats (T) are involved with it. Such analysis can help make rational decisions and avoid irreparable mistakes.
Websites and consultancies also offer special services to help business owners analyze any situation and make the best deal.
Common Funding Mistakes:
Here are few mistakes that are committed almost by every business owner.
Underestimating the capital amount required: A capital intensive business cannot buy necessary expensive equipment and cannot meet fixed and variable costs unless it has sufficient capital to do so. Most business owners, however, underestimate the appropriate amount and thus face problems later on.
Mortgaging everything: To borrow a large sum of money, business owners use all their savings and put up all their assets as collateral.
Getting a loan from friends: Many entrepreneurs choose friends and relatives as the first option to get a loan for their new venture. If the debt is not paid back on time, relations can get spoiled.
Inaccuracy in financial records: Most business owners don't keep complete and accurate records of their funds and business transactions.
How to Avoid Such Funding Mistakes?
It is not difficult to avoid funding mistakes. All you need do is to be is careful about certain things, like:
Make Quick Decisions: Time is precious. Don't waste time on a deal that you don't find suitable after proper verification.
Analyze Non-Financial Aspects: Apart from financial accounts, also look at the non-technical and non-financial factors that play major roles in the business' growth. Analyze employee relations, customer relations, shareholders relations, etc.
Look at the Cash Flow: Try to prepare a cash flow forecast at least for two years. Make proper provisions for increases in salaries, insurance, depreciation, debt repayment, etc.
Do the Competitive Analysis: You must know what your competitors are doing, what their future plans are and in what projects they are investing. Also, know your USP and analyze it for your profit.
Look at the Weaknesses: You must know what your weaknesses are and how they can be overcome. Also, try to assess the risks involved and make separate arrangements for contingencies.
A business owner should do a typical SWOT analysis to know the strengths (S) and weaknesses (W) of the business and what kind of opportunities (O) and threats (T) are involved with it. Such analysis can help make rational decisions and avoid irreparable mistakes.
Websites and consultancies also offer special services to help business owners analyze any situation and make the best deal.
