ARTICLES
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Funding Mistakes to AvoidBy Pierre Mouchette | Real Property Experts LLC
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Entrepreneurs spend years turning a great idea into a functioning business. One of the most significant causes for this slow process is the entrepreneur’s ability to secure ongoing financing. This is where most burgeoning entrepreneurs end up failing due to funding and post-funding issues.
The following financial mistakes can bring down the entrepreneurs’ company even after receiving an initial loan or round of funding. Common mistakes to avoid are:
Adding Too Many Employees, Too Soon
Rapid growth in a startup or small business may sound good, but as with most things in life, too much of a good thing can be detrimental. If your company starts out strong after initial funding, it can be tempting to hire more employees, and maybe even expand in anticipation of continued growth.
Unfortunately, over hiring is a huge financial mistake. In addition to the costs of hiring and training new workers, you will have to buy more equipment, supplies, furniture, and even obtain more office space. If your success does not continue at its current rate, you may end up with more office and human capital than you really need. This will not only drain your funds, but customer and investor perception can turn negative if you must downsize, and the emotional impact on your remaining employees will not be good either.
Not Planning for Future Financing
It is unusual that any business would only need one infusion of funds. For most business owners, an ongoing source of capital and a continued plan for financing are essential. Do not make the mistake of thinking your great idea and work ethic will ensure your initial investment is enough. Getting a business loan is great, but even the most creative entrepreneur will need a line of credit or other back-up plan for financing large expenses.
The best time to think about future financing is before you really need it. Consider which financing options might make the most sense for your business and your probable expenses. You may want to apply for a line of credit for example, even if you do not have to use it right away. Being approved, gives you the flexibility to use it in the future, should opportunities (or emergencies) arise.
Waiting Too Long to Make Decisions
This trap can strike any entrepreneur, no matter how well-funded they may be. Sometimes, having access to funds is only part of the problem, but deciding how to use it is much harder. Taking time to evaluate the situation is vital, but it is important that you not hesitate when making tough, timely decisions.
Maybe you need to hire, or lay off employees, change vendors or find cheaper ones, or invest in new or different equipment. Waiting to decide about how to deploy your funds could prove to be a devastating decision.
The following financial mistakes can bring down the entrepreneurs’ company even after receiving an initial loan or round of funding. Common mistakes to avoid are:
Adding Too Many Employees, Too Soon
Rapid growth in a startup or small business may sound good, but as with most things in life, too much of a good thing can be detrimental. If your company starts out strong after initial funding, it can be tempting to hire more employees, and maybe even expand in anticipation of continued growth.
Unfortunately, over hiring is a huge financial mistake. In addition to the costs of hiring and training new workers, you will have to buy more equipment, supplies, furniture, and even obtain more office space. If your success does not continue at its current rate, you may end up with more office and human capital than you really need. This will not only drain your funds, but customer and investor perception can turn negative if you must downsize, and the emotional impact on your remaining employees will not be good either.
Not Planning for Future Financing
It is unusual that any business would only need one infusion of funds. For most business owners, an ongoing source of capital and a continued plan for financing are essential. Do not make the mistake of thinking your great idea and work ethic will ensure your initial investment is enough. Getting a business loan is great, but even the most creative entrepreneur will need a line of credit or other back-up plan for financing large expenses.
The best time to think about future financing is before you really need it. Consider which financing options might make the most sense for your business and your probable expenses. You may want to apply for a line of credit for example, even if you do not have to use it right away. Being approved, gives you the flexibility to use it in the future, should opportunities (or emergencies) arise.
Waiting Too Long to Make Decisions
This trap can strike any entrepreneur, no matter how well-funded they may be. Sometimes, having access to funds is only part of the problem, but deciding how to use it is much harder. Taking time to evaluate the situation is vital, but it is important that you not hesitate when making tough, timely decisions.
Maybe you need to hire, or lay off employees, change vendors or find cheaper ones, or invest in new or different equipment. Waiting to decide about how to deploy your funds could prove to be a devastating decision.
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RPE Category (Digital Digest)
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REAL ESTATE | MORTGAGE & LOANS | Investment
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PUBLISHED:
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January 8, 2021
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