I’ve worked more than three decades in business; large and small, online and offline, in positions from the bottom rung of the ladder all the way to Board level and CEO.
I’ve seen businesses flourish spectacularly but also seen them crash and burn just as quickly.
Over the years, you tend to see patterns of behaviour emerging, the same mistakes being made over and over again.
In my humble opinion, some of the most common mistakes relate to Financial Management.
A great many entrepreneurs start out with their online business full of optimistic expectations, huge excitement, big ideas and dreams, but little else.
After all, they are so fired up with energy and so utterly convinced their product or service will be a roaring success, nothing else really matters, does it?
So they don’t take the time to look at the data surrounding their niche so that they can understand what is possible and what’s unrealistic foolishness.
Some will ignore all the facts that present themselves and stride forwards into certain failure.
But others go on to succeed seemingly against all the odds.
Common financial management mistakes for entrepreneurs are:
💥Not Having Enough Start-Up Capital –
Many business owners fail to realise how much investment will be required to get their business started.
They don’t raise enough starting cash and so they hit roadblocks before they even get properly off the ground.
This is true for small businesses and big businesses alike.
Every business needs some start-up capital; you can’t really start with nothing, no matter how romantic that sounds.
If you think you can, I promise you you’re being unrealistic and you’re condemning what might be a great business idea to an early demise.
I have been an accountant and been involved in financial management, forecasting and budgeting for some huge multi-national sized companies.
So, I would always advise being prudent to the point of pessimistic when budgeting your level of sales in your first few years.
If you sell more, that’s great! But in most cases you make less than you expect initially so don’t take on huge overheads that you can’t withstand.
💥Spending Too Much Money at Start-Up –
The other side of the coin is that I have seen many people over-invest in their start-up.
They haven’t really looked at the big picture and so they start throwing money at the business without any budget at all.
If you are starting a really small business that you believe you can earn a few hundred dollars a week doing, you don’t need to chuck $25,000 at a website.
Be realistic about the type of tools you need to experience the level of success you are aiming for.
Beware bright shiny objects. This will ruin the average online business.
💥Not Paying Yourself –
This is the classic entrepreneur recipe for disaster.
Many entrepreneurs will start their business and often experience encouraging early signs, with decent sales coming in.
But they’re so keen on making the business a success that they either do not formally pay themselves, or they simply take what they need out of the business account with no thoughts to what belongs to them and what belongs to the business.
Then when the business starts failing or the owners realise they need more than they’re getting, the business runs into trouble.
The harsh truth is that until you can formally pay yourself, it ALL belongs to the business.
That’s why I would always advise doing what I do with my gold business model – Pay Yourself First!
💥Not Looking at the Data –
All of the above can be avoided by looking at the real data about your business start-up.
Don’t spend more money than indicated by the hard data.
The things that you research in advance- the competition, your target audience and so forth, will help you determine the price of your product or service.
And how many people are in your target audience will dictate how many people might spend their money with you.
Most of this can be determined before you even open your doors by doing your due diligence, asking the right questions and collecting the right data.
💥Waiting for Perfection –
Whether it’s a website, a book, or other type of product or service, don’t wait for perfection.
First of all, perfection does not exist.
There will always be room for improvement.
Due to this fact, if you try to wait for that perfect moment, you’ll never launch your business.
It’s called ‘analysis paralysis.’
A caveat here is that this doesn’t mean you ignore what I said about market research etc above.
Do your groundwork THEN launch!
Another quote that I love is ‘Ready, Fire, Aim.’
Remember, if something is not quite right with your product you can always correct it with future editions / releases.
💥Not Knowing When to Walk Away –
The concept of sunk costs is often lost on new entrepreneurs.
I know this to my own detriment because I’ve made this mistake.
A sunk cost is the money you spent starting up the business.
When determining whether or not to walk away from a business, you should never include sunk costs in your decision, no matter if those costs were astronomical.
That’s money that is long gone, money that you will never get back, no matter how hard you work if your original business model has turned out to be flawed.
Learn how to look at your metrics so that you know when to say ‘enough is enough!’
Too often I’ve seen entrepreneurs refuse to admit they got it wrong and so they continue to throw good money after bad.
💥Reinventing the Wheel –
If it’s not broke, don’t fix it.
Time and again consumers have shown us that they don’t want something, that they already love, somehow made better.
Think about original Coke versus New Coke, for example.
The same can be said for online businesses.
Clever companies will have already done studies on what colours of sites work best with various audiences, what type of websites work best with a particular subset of an audience and so forth.
Go with the numbers, split-test small changes, analyse the results but don’t try to be radical when so much already works fine.
💥 Not Understanding That Customer Service Is Vital to the Bottom Line –
Your customer service ability can make or break you.
You’re probably thinking how has customer service got anything to do with money management mistakes, right?
But if you haven’t pleased the customer and you offer no customer care, you’ll soon find out the harsh truth that it costs a lot more to keep acquiring new customers than to keep the ones you have happy and repeat buying from you.
💥Under-Anticipating Response –
Nothing is worse than doing a marketing blitz and then finding out that your website has crashed.
Be prepared for any major spike in traffic, whether by foot, website, email or telephone when you do any type of marketing.
Test your websites continuously and make sure that you have the right hosting for the type of traffic you need to make the kind of money you believe you can make. 💥Spending In Advance of Receipt –
Another common financial management mistake entrepreneurs make is spending money before they actually get it.
Just because someone owes you money doesn’t mean they will actually give it to you.
Be prepared for potential cash receipt issues with good billing procedures that your clients understand and respect from day one.
Then, never spend a single dime until you have it confirmed in your business bank account.
At the end of the day, making financial management mistakes is pretty much par for the course for any new entrepreneur!
It goes with the territory.
But, you can avoid dangerous business-killing disasters by always measuring your numbers from day one, in a realistic data-driven manner.
As you can imagine, I have addressed all of these issues with my inflation-proof 2018 start-up business 22ndCenturyGold which is partnered with these uber-successful asset-rich guys.
Why don’t you free yourself from the shackles of the normal commission-chasing online also-rans and instead rediscover your smile as you start turning pennies into GOLD!
Have a great year!
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