3 Financial Mistakes Your Startup Should Avoid - What to Know

Startups are incredibly popular nowadays, but running them can be quite a challenge. It’s a relatively new business model, and finalizing your product can take quite a while. They’re also usually made of small teams, meaning everyone usually wears multiple hats. That also typically means that no one on the team is an expert in managing every aspect of a business, leading to some serious risks.

However, that doesn’t mean startups are doomed to fail. When a startup recognizes its strengths and weaknesses, it becomes easier to build a more solid foundation for the future. It’s also important to be aware of the common mistakes that startups make, especially in the financial aspect. Here are three financial mistakes that your startup should avoid:

Not Prioritizing Finance

As a startup, you’re getting your funding from generous investors. You’re probably focusing on making sure you come up with a great product and bring it to the public, so finances might be put on the back burner in the meantime. However, ignoring your business's financial aspect can be one of the biggest mistakes you can make.

Although you might be paying your employees and utilities on time, this isn’t enough to run your startup. You’ll need a Chief Financial Officer's (CFO) expertise, even if it’s a consultancy. This allows you to identify any gaps in your financial processes and develop smart plans to ensure you stay afloat. Your CFO will help you identify opportunities for sound funding while creating milestones to help you get where you want to be.

CFOs also help you transcend basic transactions and recordkeeping by helping you craft a solid financial strategy. This will put you leaps and bounds ahead of your competitors, putting you in a secure position to weather many startup storms.

Forgetting to Be Liquid

Learning how to manage your cash adequately is essential in any startup. Staying liquid allows your company to manage cash flow and ensure that more is coming in than out. Predicting all cash-in and out helps you manage any sharp increases and sudden decreases. You’ll be more prepared rather than caught off guard to handle any unexpected turn of events.

Excellent cash management also means working with your designated receivables person to ensure that collections are going smoothly. Another good idea to help your startup stay in an ideal financial position is regularly reviewing internal financial records with monthly statements from clients, banks, or other financial institutions. This allows you to determine if these figures are matching up and catch any discrepancies before they worsen. 

Disregarding Compliance

Regulators can be pretty tough on startups when it comes to compliance with tax requirements and financial obligations, so make sure that you’re actively compliant. After all, ignorance isn’t an excuse that regulators are known for accepting. There are too many risks involved with disregarding compliance, so you and your startup should be on top of all your requirements.

Another reason to ensure you’re compliant is that government intervention can make running your startup incredibly tricky. Audits tend to interrupt businesses, and if they find anything troubling, you can incur expensive penalties and interest charges. You also risk losing the ability to run your startup, and that’s something you really can’t afford. Instead, ask for the advice of a compliance expert. You’ll ensure that your company is in good standing, which is always beneficial. 

Conclusion

Running a startup can be incredibly exciting, especially as you slowly give life to an idea you’ve envisioned. However, it also comes with tricky aspects that are important to keep in mind, like your finances. Plenty of startups have fallen because of these financial mistakes. Now that you know what not to do, you can confidently run your business while keeping your finances in check with experts' help.

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