The vast majority of Australian startups fail within their first year of doing business and in order to avoid this fatal scenario, what you need to do is figure out why this happens. This alone should give you an idea of how to avoid this outcome. Now, not all of these mistakes are financial, in fact, the single biggest reason why so many startups fail is the for the product/service that you’re peddling. However, financial mistakes can ruin your business from the inside, so, here are the top six that you should avoid at all times.
Miscalculating the initial budget
The first thing you need to keep in mind are the initial costs of starting a business, like registering it, paying the lease on an office, getting the equipment and hiring people to work for you. Sure, some of these expenses can be lowered due to the fact that it’s cheaper to . Still, this is not where your troubles end due to the fact that your business might not be profitable for months. This is why you need to have enough money for operational expenses for the time being. Other than this, there are some unexpected expenses to think about. All in all, you have a tough task ahead.
In order to run a successful business, you need to generate profit. Needless to say, this involves several different aspects. First of all, you need to make sure that the cost of production and your pricing strategy are in alignment. In other words, you need to make sure that what you’re selling your products for is covering the cost of production and making you profit, even if you do want to be competitive with your prices early on. Other than this, there’s a marketing phenomenon known as , which is something that determines the efficiency of your marketing. Lastly, having same- or next-day delivery is incredibly expensive, so make sure that it’s worth it.
Not considering a cash flow problem
There are some scenarios where you may find yourself in a tricky situation due to the fact that your current income isn’t big enough to cover some of your operational expenses. The chances that this will happen at one point are substantial, which is why you need to have an alternative funding option available. First of all, you can always get an additional, minor cash loan. Second, you could try selling invoices to factoring companies. Finally, if these problems are caused by customers who are reluctant to pay, hiring a professional debt collecting agency isn’t a bad idea either.
Being too ambitious
While there’s nothing wrong with believing in your dream, some people are just too ambitious for their own good. This results in expensive moves like hiring too many people, spending too much money on equipment or getting too much of office space. Fortunately, each of these factors has low-risk alternatives. Instead of instantly hiring more people, you can hire some temporary help in the form of freelancers. Instead of buying new equipment, you can try renting it. Finally, instead of moving to a bigger office as soon as you experience growth, what you should do instead is hire telecommuters or pay for a shared office space for some of your staff members.
Undermining your own brand value
One of the less known financial tips is the fact that discounts aren’t always a good thing. For instance, a famous fashion brand Louis Vuitton is, among other things, known for the fact that it never has sales. All the leftover items (and there aren’t a lot of those) are destroyed rather than offered at a discount. The reason behind this is the fact that Louis Vuitton is a luxury brand and, as such, by offering a discount, they would devalue their brand as a whole. This is definitely something that you should think about as well.
Expanding too soon
The last thing you need to hear is the fact that not every increase in workload is a reliable indicator of long-term growth. Therefore, before overinvesting in ways that we’ve previously described, take a bit more cautious path in order to make sure that it’s a real trend and not just a fluke.
Just by being aware of these six potential financial dangers, your business will be a lot safer in a financial aspect. This will ensure that you take slower-paced, safer steps towards progress instead of rushing towards an imminent disaster, like so many inexperienced entrepreneurs before you.