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Why Startups Need to Be Extra Careful with their Money

Why Startups Need to Be Extra Careful with their Money

Startups are fragile. It is one of their most recognizable traits. Their success may be just around a corner, but the corner is often not turned.

In most cases, this is because the people who found and run the startup are not careful enough with their finances and their money in general.

Since the startups don’t have a strong background at the initial stage of operations and accounting, it is imperative to understand the reasons why book-keeping is important for startups. But what exactly are the traps and how startup owners can avoid them?

1. Starting a Startup on a Loan

This is a mistake that many startup founders make even before their startup comes to life. Namely, they believe in their idea so blindly that they start thinking no loan is too great to start their business.

Business loans can be quite useful, but when startups are in question, they should be avoided in most cases. This is especially true for startups that do not have a clear business plan and that are more “conceptual” in nature.

2. Not Working out the Numbers

The world of business always comes down to numbers. You can have the best possible idea in the world, if your startup is not founded on a very strong “numbers” foundation, it will all be for nothing.

You need to make sure you know how much money you need to start your business, how much money you can afford to “burn” in the early days, what kind of investments you will need and when, how you will compensate your early employees, etc.

If you are not sure about any of these, you have to get your facts and numbers straight as soon as possible.

3. Renting Office Space Right Away

In most cases, startups do not employ more than a few people. Often, they are one-person operations. In such cases, there is no need to go renting out office space right away.

It may make you feel like you are a bona fide business, but if there is no need for the costs of renting space, why incur such expenses? Once things start rolling, you can start thinking about an office.

4. Spending Money on Fancy Stuff

Once the startup survives its first few months and things get going a bit, many startup owners start thinking they are “obliged” to have the fanciest new office in town, the latest technology they can get their hands on and all kinds of perks for themselves and their employees.

This is a huge mistake. These costs add up and you often end up with immense expenses that are completely non-essential but that still have to be paid for.

5. Not Considering Additional Costs

This is closely connected to the previous issue we talked about. Namely, no matter how well you work out the numbers, there will always be additional costs that you have to be very careful about.

Things will go wrong. A pipe will burst at your office. Your computer will crash. You might need to purchase new software for something. Stuff will happen. You must keep this in mind and “plan” ahead.

You cannot afford to be wasting money on such additional expenses. For instance, if you need a new piece of software for your startup’s operation, you will want to read up on software reviews to get the most for your money.

6. Raising Too Much Money

Believe it or not, there is such a thing as raising too much money for your startup, especially in that sensitive period after a year has passed. Namely, startup owners believe they simply have to attract as many investors as they can and raise as much money as they can, without actually needing that much.

The reason why this is a problem is that no money is free. Investors like SEO Mississauga Company come because they see an opportunity.

In most cases, this will mean you will lose stake in your own company and your employees will end up with less valuable stock options. Be smart when raising money.

Be smart about money. That is the only way to ensure the success of your startup.

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