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Dubai: Starting a business brings with it financial anxieties related to maintaining and expanding the business. Sometimes, even an entrepreneur’s personal livelihood may be tied to the business. While this is true, it’s also true that entrepreneurs who carefully plan their finances to provide a safe runway for their businesses have a higher chance of sustaining and growing.
Knowing exactly when to invest, how much to invest, and when to stop is critical, as doing it too early or too late can create challenges for new startups. This article will explore some common financial mistakes that entrepreneurs can and should avoid through careful planning.
Financial errors usually have two meanings. First, is the money being spent in the wrong place. Second, inaccurate expectations of a business’s financial needs at a particular time. Serial entrepreneur Chanda Lokendra Kundnaney said this could put a financial strain on businesses and entrepreneurs. She already ran two companies before launching her current startup, LiZZOM, an organic and biodegradable menstrual care brand based in the UAE.
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Entrepreneurial Mistake #1: Exiting the Business Too Early
Entrepreneurial Mistake #1: Exiting the Business Too Early
Kundnani has a strong financial background and is careful to invest her money in the right place at the right time, so the first point is not a challenge for her. But “getting rid of (the business opportunity) too early” was a financial mistake Kundnani had made in previous businesses, especially her catering business, where she doubted the scope of expansion in a given period.
“Just like investing in the wrong place is a financial mistake, not investing at all is a financial mistake. For my first two businesses, I started with a general focus on investing. I was constantly worried that I might run out of money. This It limited me from investing in the right place at the right time. If I had taken a different approach, stayed longer and invested more money, the business would have survived.”
Lessons worth learning: Startups should try to set aside a fixed amount of capital to cover business and personal expenses for at least two years. It is not appropriate to expect high returns from the business during these two years, and should be regarded as an incubation period. Two years is a good enough time to understand if the business model works, how scalable it is and how much profit can be made in the future. This gives entrepreneurs enough time to focus on building a solid foundation and growth strategy for their business. Importantly, even before starting a business, entrepreneurs should try to measure scalability to avoid exiting too early or lasting too long.
![stock entrepreneur business](https://imagevars.gulfnews.com/2020/11/18/Stock-Entrepreneur-Business_175dbf1f36d_original-ratio.jpg)
Entrepreneur Mistake #2: Not Considering All Costs, Resources
Entrepreneur Mistake #2: Not Considering All Costs, Resources
Documenting everything from day one is a crucial exercise for any new startup. Just like reaching a certain number of clients is a business goal, there must also be realistic financial goals. This will help in understanding the expenses and planning financial resources accordingly.
“Not every startup has to become a unicorn. Any startup that sets financial goals from the start will perform well based on clarity around its expenses and expected returns. To do this, set up proper accounting Institutions matter, and this is an area that cannot be ignored. Sadly, many startups ignore this. Half of them keep track of expenses mentally. Some of them maintain an Excel sheet. And only A minority (less than 25%) maintain adequate accounting systems through free-to-use apps or hire freelance accountants to regularly review cash flow.”
Lessons worth learning: It is recommended to separate personal and business expenses, especially for new startups with co-founders. This becomes especially important when such a new startup decides to raise capital to make valuation easier and accounting more transparent. On the other hand, if it is a business led by a single founder, smaller official or personal expenses may not always need to be recorded separately. Still, recording expenses is crucial.
Entrepreneur Mistake #3: Raising Too Much or Too Little Capital
In some cases, new startups tend to raise too much or too little investment. That’s why it’s crucial to optimally define your funding needs. This helps avoid raising more investment than needed and vice versa. Kundnani noted that this ultimately affects the health of the business, as investors must be rewarded or allocated shares.
![stock entrepreneur business](https://imagevars.gulfnews.com/2020/11/18/Stock-Entrepreneur-Business_175dbf1f279_original-ratio.jpg)
Entrepreneur Mistake #3: Raising Too Much or Too Little Capital
Lessons worth learning: When a startup is ready for outside investment, it’s advisable to spend some money to complete a proper valuation and financial plan. When a third party performs the valuation, there is little chance of underestimating or overestimating the value of the company. Kundnani also shared a piece of advice she once received: “If you want to attract investors to come on board, show them the numbers accurately. Even if things like customer acquisition costs are high, show the numbers.”
Entrepreneur Mistake #4: Not Keeping a Paycheck
Small businesses or start-ups tend to plow profits back into the business, at least in the early stages of operations. However, for many new ventures, revenue is also a source of personal livelihood. Therefore, it is important for entrepreneurs to allocate their income or salary to themselves.
“Even entrepreneurs have bills to pay. We have a social life and certain financial commitments,” Kundnani said. “Since the establishment of LiZZOM, I have deliberately set aside a salary for myself. I have consciously set a schedule after which I will withdraw a certain amount of funds from the company as compensation and allowances. Even the founders need to focus on our operations Financial reward for the efforts put into one’s own business. If the business cannot compensate with regular wages, it must be kept as an account to be fulfilled when the entity starts to make money. Such an account can also be used when investors come in to estimate the efforts and funding of founders, co-founders, and employees.”
Lessons worth learning: Not setting aside any funds for an entrepreneur’s personal use is neither practical nor sustainable. While Kundnani has been self-funded so far, she expects to raise investments soon to pursue future growth. When that happens, she plans to set aside a certain amount of money for herself as compensation for the years spent building the business, making this clear to investors.
![stock entrepreneur business](https://imagevars.gulfnews.com/2020/11/18/Stock-Entrepreneur-Business_175dbf1f2cd_original-ratio.jpg)
Entrepreneurial Mistake #5: Avoiding Taking Calculated Risks
Entrepreneurial Mistake #5: Avoiding Taking Calculated Risks
One message Kundnani wants to share with the startup community and other entrepreneurs is to not avoid taking calculated risks. “This may sound cliché, but it’s true. For example, in my current startup, I had to first create awareness among women about the product. Even though I was advised to go out and launch the product right away, I had It was a conscious decision to take the time to first raise awareness about the importance of using safe and hygienic hygiene care options and then launch the product. It was a calculated risk on my part.”
Lessons worth learning: Take one step at a time. For product-based startups like Kundnani, low-volume production tends to be more expensive. But when onboarding, it’s prudent to test customer reaction with small batches of product rather than investing in large stock-keeping units (SKUs) right away.
What is a stock keeping unit (SKU)?
In the world of inventory management, a SKU is a distinct type of item for sale, such as a product or service, and all the attributes associated with that item type that distinguish it from other item types.
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