Startup Funding Mistakes Every Aspiring Business Owner Do

Startup fundraising could be pretty dicey because with just one mistake you could blow up the money. Therefore, it is imperative to know your business goals clearly. You must understand what sort of funds you are looking for, exactly where you would be looking for it, and what all are required to get the funding. You could initiate the funding process by identifying the right investors. You must do a proper homework and ample research to get ready for the investor meetings.

Even if we assume that you have done the needful and you are on the right path to financial assistance from trustworthy investors, there are certain funding mistakes that you must necessarily avoid; otherwise, you could end up sabotaging your own fundraising process. Experts believe that several mistakes are pertaining to the way organizations understand, communicate, and monitor their financials.

Startup Funding Mistakes

Here are some of the most alarming Startup Funding Mistakes for you to Know and Avoid.

The Absence of Precise Funding Objectives

If you are looking for a funding, it is imperative on your part to lay down some clear objectives. You must know exactly how much capital you are looking for. Many people are so busy with advance planning that they forget about this basic step. It is best to follow milestone fundraising. You must determine how much funding is necessary for getting to your next milestone. You must determine exactly how much capital would be required to achieve the next milestone right from all the operational expenses to the mandatory professional services.

Waiting Until the Need Arises

Several budding entrepreneurs often make the mistake of waiting until the very last moment. You must seek funding well in advance and not wait until the actual need for ready capital arises. You must appreciate that the funding process could take several months. You must be aware that even a basic loan would be requiring a lot of documentation and paperwork. Ironically investors and bankers would be interested to provide funds when you do not actually need them. It is best not to wait until there is an urgency to initiate the funding process.

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Looking for Funding Too Early

Do not be in an excessive hurry to seek funding or raise money. Bootstrapping should be the right choice for many organizations. If you sell your equity or shares early, it would have adverse repercussions in the form of loss of dilution and leverage, as far as, the management control is concerned. Dilution is actually offset by increases in valuation. However, early funding could be a bad decision and is common among Startup Funding Mistakes.

Not Coming Up with the Cash-Flow Analysis

You must appreciate that potential investors are interested to know that you have a clear understanding of your cash-flow and exactly how you are intending to use up the money. You must monitor carefully all your transactions. If you are aware of the cash in cash out, these numbers could be used as the foundation for the start-up business decisions. You must always pay up your debts on time and browse through debt consolidation reviews online for more information and expert advice.

Raising Excessive Funds

You must understand that more is not necessarily good. If you are raising exactly what you require it means capital efficiency which is supposed to be a real indicator of the success of your organization as opposed to the capital access. Moreover, excessive funding could mean greater dilution for sure.

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Raising Too Little Capital

Another big mistake is not raising adequate money. Once more you could resort to milestone funding. If you have already identified the next milestones that you wish to attain and what all would be required to attain them. You must necessarily have a clear idea about the amount of money required.

Overestimating & Misjudging Future Revenues

Financial projections are mandatory. But as we have already discussed there is absolutely no need for generating unrealistic numbers. Though a top-down financial prediction could be quite inspirational, there is no use for coming up with unrealistic numbers. Companies are really interested in a more reliable and substantial bottom-up prediction.

Undervaluing Variable Expenses

Variable expenses are supposed to be expenses that are not fixed and vary according to the level and type of business activity. You cannot predict or estimate all future variables but you could consider some of the key variables while making your calculations.

Not Utilizing GAAP

You must monitor consistently and keep track of cash-in and cash-out and for that, you could rely on a trustworthy accounting system just like GAAP or Generally Accepted Accounting Principles. GAAP provides dependable accounting information that could help in important financial decisions.

Not Mentioning the Next Step

The opportunity to send an executive summary to potential investors is rare and must be seized. That said, their time is extremely valuable, so you need to make their job easier by clearly mentioning what you expect the next step of the process to be, like a phone call, teleconference, or an in-person meeting. Clearing an elevator pitch is great but if you don’t show enough initiative to define a clear next step to take, it is likely that your investor will forget about the nuances of your company and might forget you altogether.

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Not Taking Enough Initiative

Interested investors are great, but the onus to follow-up on the deal is still on you. A lot of investors make this the first real test of your integrity and commitment; waiting until you follow up. You should give them some breathing room for a couple of days but then reach out to them to ensure you don’t fall off their radar.

Conclusion

There is more to financial management than meets the eye. Every aspect of your operations ties into finance, from the beginning to the very end. An entrepreneur who doesn’t pay attention to the finance side of things isn’t going to be successful for too long. Be mindful and be on top of things at all times. It is crucial to do all calculations relating to your startup costs, analyze expected revenue potential, and come up with effective financial projections. Remember financial calculations play a pivotal role in the success of your fund-raising story.

If you did any mistake and want to share among our readers than feel free to comment below and let others know.

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