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Financing

8 Common Small Business Funding Mistakes You Must Avoid

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Are you making these common small business funding mistakes?

common small business funding mistakes to avoid - a dollar money bag plus vector hands.

The process of funding your business is a very delicate one as it can make or mar your business.

In fact, there are lots of thriving businesses that has gone into extinction as a result of funding-related mistakes, and this is why you need to avoid repeating such mistakes so as not to follow suit.

Without any hesitation, let’s get started!

MISTAKES TO AVOID WHEN FUNDING YOUR BUSINESS

Here are some of the grievous financial fundraising blunders, and how to avoid them:

Overestimating future revenue

It’s much easier to overestimate the amount your business is likely to generate in the next accounting period using the historical data, and you may even be extremely glad to present the impressive figure to your creditors so as to convince them to borrow you the needed funds.

However, you must be very careful when estimating your future revenue as there are several variables that could alter your forecast, and you must always keep it in mind that poor forecast can mar your business’s financial health when it’s time to repay the loan.

Raising money too early or too late

Yes, I understand that your business needs money to survive, but never be too quick or late to raise money for your business. Here’s the reason:

When you fund your business too early, you may end up losing a substantial part or even the entire money.

For example, if your startup is still at its early stage and you decide to start spending on expensive machines just because you see other firms doing so, that singular decision may affect your business’s financial health since you are spending high despite your limited funds.

Not having expert counsel

The fact that you own your business does not necessarily mean you must be the only one making every decision in the organization; there are several decisions that require great expertise, of which finances is a part.

Before deciding to fund your business, you need to first seek counsel from financial experts so that they can advise you on the best course of action based on their experience.

What appears good to you may not be ideal at all when the experts assess it. Therefore, never fund your business until you get a satisfactory direction from the experts, otherwise you may lose the entire funds.

No clear funding objectives

When trying to invest some funds into your business, it is imperative you clarify the exact amount needed to achieve the goal at hand.

As simple as this may sound, many businesses have fallen victim and they are nowhere to be found again today.

The best way to prevent such a horrible experience is to firstly figure out the exact amount you need, why you need it, and also ruminate on how to make the most of the funds.

Underestimating your variable expenses

Although there’s no way you can accurately account for all your variable expenses, but it is very essential to pinpoint the key variables and factor them while making your calculations.

Doing so helps you to have a complete grasp of your total costs and enables you to take steps to mitigate any risks that ma arise.

Forgetting about hidden fees

Business loans, in most cases contain certain hidden fees, including origination fees, contract fees, application fees, administrative fees, etc. and the mistake most business owners make is that they don’t consider these fees before finally obtaining the loans.

Borrowing funds with several hidden fees simply means that you will get lesser amount and still pay more. This is not favorable at all, and it can even affect your business’s financial health.

Therefore, make sure you understand the basic terms and hidden fees associated with the loan you intend borrowing before making a final agreement.

Not using GAAP (Generally Accepted Accounting Principles)

This is yet another mistake to avoid when funding any business. When there is no proper tracking of the cash flowing in or going out of the business, then it is certain that such business will soon collapse.

Adopting GAAP standards will provide you with more reliable accounting information which is very vital for making informed and sound financial decisions.

GAAP statements are also useful to the investors as they will be able to make optimal investment decisions.

You can hire any reliable accounting firm to help you with these standards.

Stacking your business loans

Loan stacking is a scenario where a business owner sources multiple loans at once. This is a grievous mistake you need to avoid to keep your business safe from “financial leprosy”.

Sourcing loan from multiple sources is not a good idea as it may negatively affect your business.

For instance, assuming your business owes some creditors and you decide to obtain loans from different sources so as to pay the existing creditors.

This is not a great move at all because your debt will only be accruing and your business may even collapse if care is not taken.

Rather than sourcing loan from multiple sources, you can evaluate the available finance sources and select the most optimal alternative.

CONCLUSION

Now that you’ve identified some of the Mistakes To Avoid When Funding Your Business, which of these blunders have you ever committed, and what was the effect on your business?

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