13 Common Startup Financial Mistakes to Avoid

By Young Entrepreneur Council | Small Business

What’s the most common financial mistake first-time founders make and how can they avoid it?

The following answers are provided by the Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

1. Paying for Nice-to-Haves

Often, founders see other founders and let their ego kick in. Don’t. It doesn’t matter what Elon Musk, or the entrepreneur down the street uses for their desk/computer/car/office. If you don’t need it, don’t spend money on it — especially not early on. The benefits of running lean are innumerable.
- Brennan White, Watchtower

2. Not Saving Enough Money for Personal Use

When you start a company, you need to be prepared to kiss that regular paycheck goodbye early on. You can’t always pay yourself first. If you haven’t prepared for this, you’ll find yourself making desperate decisions for the sake of money. Plan ahead so you can stay cool early on.
- Allie Siarto, Loudpixel

3. Renting Office Space

A common mistake for first-time founders in technology companies is renting office space too soon. If you are a company of one to three people, then having office space is not a necessity, especially with all the communication tools out there. Meeting at a local coffee shop should work out fine until you have more money and growth in your business.
- Phil Chen, Givit

4. Outsourcing Your Dream

As an entrepreneur, you’ll happily pull all-nighters and make great sacrifices to get every detail just right. Generally speaking, when you outsource work, that just doesn’t happen. You’re a client. Things move slowly, and bills can pile up fast. You can’t outsource a dream, so do your best to find people who believe in your vision and build with them. It’s much cheaper in the long run.
- Daniel Gendelman, Yello

5. Extending Beyond Your Means

I think one of the most common mistakes is extending beyond your means with any resource, be it time or money. It’s easy to spend more money if you’re expecting a return in spades instead of playing it safe. It’s also easy to spend either not enough or too much time on your business, and it’s hard to walk the line of investing your time wisely.
- Daniel Wesley,

6. Not Realizing Hidden Costs

Talk with other entrepreneurs and see what surprises they have had. I bought a building in a historical section, and the extra costs of rehabbing the building were twice what I thought they were going to be.
- Phil Laboon, Clear Sky SEO

7. Not Raising Enough Money

Raising too little money and being under resourced is a common mistake. You need to know that you have the resources in place to build a business. Some entrepreneurs may hesitate to give part of their company to bring on additional investors, but having money allows you to make mistakes, and things always take longer than you may think. Money buys you more time to get your business running right,
- Dries Buytaert, Drupal

8. Acquiring Too Much Debt

First-timers need to get cash-flow positive as quickly as possible before trying to raise thousands or millions in capital. Get something working that’s producing cash, and then use that cash to grow and build your business once you see it’s working. Start small, and grow big. Too often, first-timers get up to their eyeballs in debt and count on future sales. But what if they never come?
- Joe Barton, Barton Publishing

9. Miscalculating the Over/Under

Things always cost more than you expect them to, and you always generate less revenue than you anticipate starting out. Until you really know your business, only be serious about budgeting out on a quarterly basis. As time goes on, you can really put together serious annual budgets, but that takes time.
- Raoul Davis, Ascendant Group

10. Commingling

Oftentimes I hear first-time founders commingling their personal assets with company assets. This is a surefire way to cause yourself headaches down the line. Always keep separate accounts and detailed records of personal funds invested in your business.
- Adam Lieb, Duxter

11. Raising Money Before Identifying a Profitable Market

It’s every first-time founder’s dream: raise a bunch of money, scale a Web product to millions of people, then cash out for billions. But as we all know, it usually doesn’t go like that. The best way founders can set themselves up for success is to prove there’s a market that’s willing to pay for their new product. So, get outside the friends-and-family circle and ensure there’s sales potential.
- Matt Hunckler, Verge

12. Skimping on an Accountant

Two people who you never want to “skimp” on are attorneys and accountants. Get the best you can afford. Not all accountants are the same. Good accountants and controllers cost more for a reason. The extra money it costs for a top-notch accountant who will go above and beyond to make and implement bold recommendations for the company pays for itself.
- Phil Dumontet, DASHED

13. Ramping Up PPC Too Quickly

It’s a marathon, not a sprint. Scale up your PPC campaigns slowly to make sure you are only targeting keywords that will provide returns on ad spend.
- Josh Weiss, Bluegala

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