Starting up a business can be an exciting but daunting time. One of the most stressful startup factors is the process of securing the financing to fund your project. Avoiding some of the most common mistakes business owners make when trying to secure capital can help keep you on the right path to success.
1. Lacking a Detailed Plan
Going into your business startup, it is vital to have a detailed plan. This plan should include an in-depth cashflow analysis that estimates the costs of day-to-day functioning. In fact, without an accurate cash flow analysis, many lenders may not be willing to fund the cost of your project.
2. Underestimating Costs
When attempting to secure funds, many owners make the mistake of underestimating costs or lowballing costs to potential lenders because they think asking for less money means they are more likely to get approval. If a lender sees an unrealistic sum, they may assume a proper analysis has not been completed. Worse yet, if you underestimate your needs you could run out of money before you are able to turn a profit and be left in a bind.
3. Falling for a Scheme
As a general rule of thumb, if a lending offer seems too good to be true, it probably is. There are scammers in nearly every industry, and the lending world is no exception. Scammers often offer up funding for an upfront non-refundable fee, then turn down the offer based on some minor issue. These upfront fee scammers are common enough for warnings to be issued to entrepreneurs.
4. Overextending Personal Credit
Starting and funding a business requires funding, but that funding should not exclusively or even mostly come from extending your personal credit. Many entrepreneurs make this mistake because they believe in their plan to replenish their personal funds, but if something unanticipated happens you will no longer have the personal financial cushion to keep your business afloat.
5. Giving Up Too Much Stake
Investors in your business will want something in return, whether it is paid-back interest or a stake in your company. It’s a common mistake to give up too much stake in your company because that is something that you can’t get back when and if your business experiences success.
Seeing your business plan come into fruition involves many factors, and financing can be one of the most difficult. By avoiding some of the most common mistakes made by startup entrepreneurs, you can be one your way to a successful startup in no time.
