For many budding entrepreneurs, the costs associated with getting a business off of the ground may be mind-boggling. There can be a dizzying array of expenses that can be completely foreign to a new business owner – novices and veterans alike. While most business owners have ideally allocated sufficient funds to get their businesses going, they can be quickly hit with the reality of just how liquid of an asset cash is. This causes many business owners to seek out credit for additional capital. That said, critical financing mistakes may potentially exacerbate an already trying situation. Preparation can help to circumvent such missteps.
Seeing the Whole Picture
One of the first errors that many novice business owners make is that they fail to go through and determine their monthly expenses. Employee salaries, expenses associated with a brick-and-mortar establishment, vendor invoices, and other associated costs can quickly decimate the business owner’s startup capital. Simultaneously, new businesspersons may miss the boat when determining how long their business can survive on their initial startup assets while building up a revenue stream. Without knowing these two critical pieces of information, the inevitable reactive financing to cover an unexpected emergency may come as too little, too late.
These financing mistakes can collectively be sidestepped by remembering that knowledge is power. Business owners need to know what they have going out on a monthly basis, as well as how long they can survive on the current assets absent incoming revenue. They also should attempt to line up some sort of financing in advance of the unexpected calamity to potentially avoid premature closure.
All streams of finance are not created equally. Some loan types can carry lofty interest rates, while others may be more difficult to obtain than others. Some loans may be processed and disseminated quickly, whereas other loan types and/or loan servicers may have a lengthy, dilatory process to navigate before funds are dispersed.
Failing to do the homework on the financing options may lead to making greater financing mistakes. After all, that funding may not come through until the storm was (hopefully) weathered. Also, if entrepreneurs are careless with the terms of the loan, the crippling financing costs could add insult to injury. While credit cards may assist in a pinch, businesspersons should try to avoid the habit of swiping to solvency, as that can exacerbate hardships.
Business owners, from first-time startups to veteran entrepreneurs, should understand their numbers and do their homework. These two acts of preparation may help entrepreneurs dodge common financing mistakes borne of acts of desperation.