Four Common Startup Money Mistakes
Startup businesses come in myriad different forms, but each have one thing in common: They need proper financial management in order to survive. Small-business finance expert Steve Strauss, author of Get Your Business Funded: Creative Methods for Getting the Money You Need, outlines four common money mistakes everyone should avoid:
- Underestimating startup costs. Strauss says the most common mistake he sees entrepreneurs make when launching a business is underestimating the amount of money they will need. Startup costs, repaying investors and even the founder’s salary are all areas where entrepreneurs are too frugal in their estimates, he says. When the reality of the true cost of running the business hits, many find their budgets stretched–sometimes beyond what is sustainable.
- Failing to establish a marketing budget. Social media, e-mail marketing and publicity may be touted as low-cost ways to promote your business, but when business owners think they can launch on a shoestring, they often run into trouble, Strauss says. “The only way you can turn on the light and let people know you’re there is by marketing and advertising, or you’re going to have no customers,” he says. While some say the rule of thumb for establishing a marketing budget is 5 percent of projected annual revenue, Strauss says each business has to tailor its marketing budget to its own needs. A regional business may have more limited marketing venues than a business that is launching nationally or internationally, for example.
- Not organizing for tax savings. It’s important to seek the counsel of a knowledgeable financial advisor to determine how to organize your business for the best possible tax advantage. “Some people run their businesses as sole proprietorships instead of LLCs or S corps and give up real savings on taxes. That’s a big mistake,” Strauss says.
- Spending too much. When you land that big loan or have some savings accrued for startup, it can be tempting to splurge on a nice office space or a big staff. That’s a no-no, Strauss says. Keeping overhead low is one of the easiest ways businesses can better manage their money and ensure their survival, he says. “This is especially important when you’re in the heady first days and you want to go buy new furniture and new computers and big rent. Slow down there, cowboy,” Strauss says. “Think about how to better save or invest that money for the long-term growth of your business.”BY Gwen Moran | October 18, 2011
