I know that when I started my very first business the first years was spent actually learning all about business, and even though I had worked for various large businesses around the world, when it came to running my own business I was kind of wet behind the ears especially with real money management. I think many entrepreneurs start out in business exactly the same, they are full of expectations, excitement and dreams but little else. They don’t like to look at the data surrounding their particular niche so that they can understand what is really possible if they work towards it. Many will ignore all the facts that present themselves and walk right into failure, and others will succeed seemingly against all odds.
Common money management mistakes
Under Financed When Starting Up
Many business owners fail to realize how much it will take them to get their business started. They don’t raise enough starting cash and hit roadblocks before they even get off the ground. This is true for micro businesses and big businesses alike. Every business needs some start-up capital; you can’t really start free. At the very least you’ll need to invest time and resources that you already have.
Spending Too Much Money at Start-Up
Conversely, may people over-invest in their start-up. They haven’t really looked at the big picture and start throwing money at the business without any budget at all. If you are starting a really small business that you believe you can earn a few hundred dollars a week doing, you don’t throw 20K at a website right off the bat. Be realistic about the type of tools you need to experience the success you desire.
Not Paying Yourself
Many entrepreneurs start a business, start earning money, and either do not formally pay themselves, or they simply spend what they want out of the business account with no differentiation of what belongs to them and what belongs to the business. Until you can formally pay yourself, it all belongs to the business.
Not Really Looking at the Data
All of the above can be avoided by looking at the real data about your business start-up. Don’t spend more money than the data dictates. The things that you study, competition, your audience and so forth, will help you determine the price of your product or service. And how many people are in the audience will dictate how many people spend their money. Most of this can be determined before you even open your doors by asking the right questions and collecting the right data.
Waiting for Perfection
Whether it’s a website, a book, or other type of product or service, don’t wait for perfection. First of all, perfection does not exist, there is always room for improvement. Due to this fact, if you try to wait for perfection you’ll never launch. Remember, if something is truly wrong you can work on it with future releases of your product.
Not Knowing When to Walk Away
The concept of sunk costs is often lost on new entrepreneurs. A sunk cost is the money you spent starting the business. When determining whether or not to walk away from a business, you never include sunk costs in your decision. That is money that is gone, that you will never get back no matter how hard you work if the idea turned out to be poor. Learn how to look at the data so that you know when to say when.
Reinventing the Wheel
If it’s not broke, don’t fix it. Time and again consumers show that they don’t want something they already love made better. (Think about Coke versus New Coke, for example.) The same can be said for online businesses. Many companies have already done studies on what colors of sites work best with various audiences, what type of websites work best with a particular subset of an audience and so forth. Go with the numbers, test small changes, but don’t try to be radical when so much already works fine.
Not Understanding That Customer Service Is Vital to the Bottom Line
Your customer service ability can make or break you. You may wonder how customer service has anything to do with money management mistakes, but if you haven’t pleased the customer and you offer no customer care, you’ll soon find out that it costs a lot more to keep acquiring new customers than to make the ones you have happy.
Nothing is worse than doing a marketing blitz and then finding out that your website has crashed. Be prepared for any major spike in traffic, whether by foot, website, or telephone when you do any type of marketing. Test your websites continuously and ensure that you have the right hosting for the type of traffic you need to make the kind of money you believe you can make.
Spending before Receiving
Another money management mistake entrepreneurs make is spending money before they actually get it. Just because someone owes you money doesn’t mean they will really give it to you. Be prepared with good billing procedures that your clients understand and respect. Then, never spend a single dime until you have it in your bank account.
Making money management mistakes is pretty much par for the course for any new entrepreneur, but you can avoid huge issues by paying attention to the numbers from day one in a realistic data-driven manner.