Starting a business is like stepping into the unknown. It is exciting, full of potential, but it is also risky. While many entrepreneurs think their business will be the next big thing, the reality often proves to be different in the opinion of Scott Tominaga, a business finance expert.A large number of startups fail financially. Financial success in business is not just about luck. It is also about knowing why startups fail financially. Unless you know this, you will not be able to figure out – how to avoid those same mistakes. You can build a great product, have the best team, and work like a champion. But for success, you need a solid financial foundation.
Scott Tominaga Says To Begin With Underestimating Expenses
One of the biggest mistakes new entrepreneurs make is underestimating how much it actually costs to run a business. You may have a figure in mind, but once you start paying your bills the reality sets in. If you can’t accurately predict your expenses, you won’t know how much money you actually need for financial stability. Be brutally honest with yourself about every cost, big or small. List all your fixed and variable expenses. Keep track of spending. Develop proper budgeting to get a clear picture. It is not just about planning ahead. It is about reviewing and adjusting your finance regularly.
Ignoring Cash Flow Management
For the right financial plan for your business, you need to understand cash flow. Most business owners don’t even realize how important it is to know this. Many startups focus on profits but forget that profits on theory don’t always lead to cash in the bank. A profitable business can run into serious trouble if cash flow is not managed properly. So, monitor your cash flow weekly. Keep a running total of expected income and upcoming expenses. Start building a cash cushion. Aim to have at least three to six months of expenses saved in case of slow months or delays.
Overestimating Revenue
It is easy to get carried away and overestimate your revenue. Startups often think that their business is going to start making money from the first day. While optimism is needed, this could lead to failure as well. Be realistic with your revenue projections. To be realistic you can historical data or industry benchmarks to make your estimates.
Failing to Track Financial Performance Regularly
When you are getting started, you can ignore getting your finance checked regularly. However, it can cost you big to ignore your finance like that. So, speak to an expert and try to evaluate your finance for a better understanding.
Not Having an Emergency Fund
Emergency fund could be a lifesaver for you. Things happen and businesses lose their clients. You can build up an emergency fund and only touch it when you need it.
So, why do most startups fail financially? It is usually due to a combination of overconfidence, poor financial management, and a lack of planning for the unexpected as per Scott Tominaga. But you can avoid these pitfalls with proper planning and care.
