One of the first questions that needs to be answered when thinking about starting a business is; how will I grow this business?
Your eagerness to getting your business started can lead you to making some costly mistakes and sabotaging your business in its early stages of development. What happens next is a lot of questions, a great deal of frustration, and possibly a devastating financial setback.
Listed are some common mistakes to avoid when starting your business:
1. Not Having a Sufficient Amount of Cash Available.
This is a major hurdle for many entrepreneurs. They are passionate about their business, so they start it immediately, but they don’t have the cash to support the business. Developing a business requires significant capital, especially when you are producing products. Even if your business is a low-cost service startup, you will still need to be able to support yourself while investing in your business.
Bootstrapping is an option but try having some cash reserves in place – maybe a part-time job as you build your business. You don’t know when your business will start making money, so you don’t want it to fail before it gets started, due to you being able to invest in its development.
2. Relying on Personal Credit
You have heard the stories of people funding their business using their personal credit cards. While believing that your business will succeed is important, taking the risk of damaging your personal credit is not the best option. You affect your ability to finance any personal purchases you need to make in the future because your credit is destroyed from building your business.
If you don’t have the money available, and can’t get it from family or friends, you will have to settle for building your business slowly. Most people make the mistake of trying to be too big too fast, without having any real customers! Money will become available as you build your customer base – the ability to get loans and credit in your business’s name becomes an option.
Building a business takes time and your patience. Don’t try to rush the process by making these costly mistakes. Develop your business the right way and you won’t have to worry about rash decisions backfiring on you.
When you take your product or service to market, make sure you have a plan to finance initial orders and working capital. Since banks underwrite the historical performance of a company, they are not a good lending fit. Alternative financing such as factoring would be a better choice since a factor underwrites the future of a company. Factors do this by basing credit decision on the credit quality of a company’s customers and not the company.