5th Mar 2018

Five common financial mistakes made by founders

I’ve seen hundreds of startups over the years, and business founders tend to fall into one of three camps when it comes to finance – terrified and in denial, blissfully ignorant, or open-minded. One of these groups has a better chance of long term success…

1. Thinking it’s someone else’s problem

Business founders come in all sorts of different breeds, but at startup time in particular it’s easy to ride the wave a little. Nothing has gone wrong yet, you can think about that exciting app, service or product, and all that boring paperwork can wait, you don’t want to think about and don’t feel you have time. Stop right there. You may want to get someone else to do it, but it’s your business and it’s your responsibility. Make sure it happens. Properly. If you’re in the terrified camp, don’t run away from the problem. Remember the numbers are your friend. Get them right and they will tell you the truth. If you’re not sure what to do, get help.

2. Underestimating the value of process and timely, correct financial information

Start-up businesses are often fairly simple in construct, and the paperwork process is simple as well. But, assuming you’re looking to grow and scale, that is exactly the time when you should develop and implement robust financial processes, whether it’s around reporting and forecasting, or credit control. The early introduction of a process can reduce the emotion consumed by adverse circumstances.

3. Thinking you can DIY

You don’t have enough cash to go around. That’s not unusual, but as with every other function needed to successfully scale a business – development, marketing, sales – with finance you need to apply some expertise from the very beginning, otherwise you run the risk of having to unravel a set of bad habits and giving yourself some problems you don’t need. Take advice. Accounting can be complex, and tax more complex still. There are 2,500 pages of tax legislation…and that’s just for VAT!

4. Not having a living, breathing forecast

So you have control of NOW, but what about the future? Running a business isn’t just about what’s happening today, it’s about anticipating what may happen in the future and working to get the best out of that situation. A regularly updated forecast will enable you to anticipate the weak points in your cashflow – and motivate you to take action. When things go well, it will also give you the confidence to fund that marketing project, hire that extra, much needed employee, or scale up offices. You cannot make appropriate business decisions without this information. This isn’t just about startup or scale-up mode either. Run a business?? Then run a forecast.

5. Not understanding what you have

You may not be a financial expert, but that doesn’t mean you shouldn’t understand the key financial indicators for your business and how to read them from the information you have. Ask. Understand. Be persistent. Work with a financial services provider that can understand your business, and that gives you relevant information in a clearly understood format.