05 Nov Five Common Startup Funding Mistakes
There’s a lot to think about when starting a new business. From marketing product and/ or service offerings to where your office will be located, it can take a lot of time and resources to start a new business.
Starting your business off on the right foot can make all the difference in its success, especially when it comes to managing finances and generating sufficient startup capital. Unfortunately, this is one area where many businesses make mistakes, which can quickly lead the business to failure before it has a chance to get off the ground.
Read on to learn more about the most common startup funding mistakes, and how to avoid them.
- Working with the Wrong Investors – If you have made it part of your funding strategy to work with investors, then it’s important to work with the right The right investors will add value to an organization by assisting with recruiting talent, further building and developing a product or generating new leads and helping with conversions.
- Not Appointing a Leader – Although it might feel good to be working with a pool of investors, all whom are willing to share their resources to help you build and grow your business, not having one appointed leader can cause a downturn – and pretty quickly.For example, when it’s time to put out fires or make tough business decisions, it’s crucial to have an appointed leader to step in and help.
- Not Fully Understanding Liquidation – One common mistake that investors make is misinterpreting or misunderstanding the financial effects and impacts of liquidation. Making these types of mistakes can have serious financial consequences over the long term.In the event that you and investors choose to liquidate assets, it’s important to fully understand the impacts of this decision, and to verify the distribution amounts to ensure that you are getting your share.Learn more about liquidation events here.
- Selling The Company Too Late – It can take a time for a business to become profitable; however, businesses typically only have a certain amount of time to turn a profit before resources begin to run out. In these situations, many businesses choose to sell. But if a business waits too longer before initiating M&A, then cash could run out.In order to avoid this, it’s important for businesses to make the decision regarding M&A approximately nine months before cash is projected to deplete, and the business owner needs to be honest about the business’ potential future financial plans before initiating the M&A process.
- Not Understanding Agreements – Many entrepreneurs and business owners choose to negotiate or interpret an LOI purchase agreement before truly understanding it.These types of agreements can be complex or difficult to understand; therefore, it’s important to fully understand the terms and conditions of any kind of agreement by hiring a reputable attorney before agreeing to anything.
Starting a new business is challenging, and managing startup capital, resources, finances and investors can be even more of a challenge. If entrepreneurs and business owners aren’t careful, they might fall into one of these financial mishaps and mistakes, which can end up costing them their businesses.