The startup world is a rollercoaster. Why? Because running one is no easy task, especially if you’re an early-stage startup. For good workflow and decent results, a healthy business requires the touch of good entrepreneurial skills and, more importantly, great marketing skills. Lack of proper financial organization is one of the most frequently meet reasons that startups fail, so the sooner you take ownership of your startup’s financial health, the better. Facing financial difficulties and handling this from the very beginning is the best way to set yourself up for lasting success. In-depth planning can help you avoid common financial pitfalls and show potential investors that you’re serious.

Why Most Startups Fail?

Newly arrived businesses go under for a variety of reasons. While some simply run out of money, others fail to achieve product-marketing fit in a scalable way. While these are the most often cited reasons for startup failure, they’re also interconnected. It’s that simple: if you don’t handle a market problem and don’t generate customers, you’re will soon be going to run out of financial means to get this right.

The reality is that many startups that fail shouldn’t. These small businesses are all led by bright minds with great ideas. Yet, for most founders, initial outside investments and transformative ideas don’t always get well with the financial burdens of running a business.

When breaking down the various complexities’ founders face in understanding business financial pitfalls, we’ve found several primary hurdles they face:

Good Idea, Bad business

More than a quarter of newly arrived businesses pointed to a weak business model as a reason they failed. You may have a truly brilliant business idea, but if you can’t make it scalable nor profitable, you won’t meet success.

Not Enough Money

24% of startups said that lack of financial means contributed to the failure, while another 13% struggled to get financing. Money is king for startups. Even the most successful business model will fail without the eight cash flows.

Not Enough Market Interest

18% couldn’t get enough traction, and 12% found there was no market need for their business. Most startupers claim that they “didn’t build something the larger audience wanted.”

How to avoid financial pitfalls as a startup?

1. Watch and Keep Your Expenses Low

Almost any startup is in the initial phase’s survival stage; therefore, keeping expenses low or fixed is a smart move.

Expenses and their role in helping you maintain a normal business revenue are crucial. Not for nothing, every successful entrepreneur tries to plan every large expense, including utilities, interest, payrolls, taxes, and operating expenses in advance. Managing these expenses “from head to toe” will ensure your cash inflow is running smoothly, even with a tight budget.

Check Your Inflow

If your business is having problems with cash flow, there’s a chance you might have a serious problem in your sales department.

It’s that simple: without incoming money, you will get no capital, funds, nor insurance, and there’s also a risk you might not be able to afford employees’ salaries.

Be all ears and eyes with your cash inflow. Focus more on debts owed by customers as this often can be the bad apple of your financial snags. You must also take into consideration your inventory since you don’t wish to be buying more than you’re selling.

2. Avoid Taking Expensive Credits

Whether you’re out and about to set up your startup or you’re already an established brand, you need to make optimal use of your business’s financial means. Set up some financial goals that can help you build an ongoing business portfolio to benefit your organization.

Remember that it is the developing period of your business, and the credit cost plays a crucial role. What’s more, even with a less-than-perfect history, there’s a chance you could obtain bad credit business loans no matter your niche. Your foremost financial goal should be to set up interest core at a minimum value to reduce costs and attain profitability.

3. Always Balance Personal and Business Finances

One critical move that can help you dodge typical financial problems as a startup is setting a financial business account. Put simply, using different banks for your personal and business accounts can make or break your startup success.

Keeping these accounts separate will make accounting up-front throughout the year. What’s more, you can easily calculate your taxes as well as reduce the cash crunch situations new businesses face due to unexpected withdrawals. It might sound counterintuitive, but you will need to avoid withdrawing cash for personal matters from the business account.

Consider using different loans and credit cards for your startup but avoid using them for personal expenses.

4. Failing to Assign Project Budgets

The proper budget assignment will prevent you from draining your finances should something go wrong. A steady and well-defined budget will help you reassess your finances should the project require more financial means and make a smart decision that won’t damage your newly arrived business.

Regardless of your startup’s stage, proper budget assignment is crucial to managing business finances efficiently. Another way of doing this is to manage cash movement. The best way is to track cash flow from supplier costs to product purchasing. Remember to take into account both the legal and financial side of the monetary transaction to track money movements. This will also help you figure out which business areas are performing effectively and where you need to assign more or less financial power.

Underestimating your financial power can land your startup in hot water. Not for nothing, most successful entrepreneurs are wary of their monthly expenditures and cash inflow.

A successful startup needs a steady financial foundation, so keep these common financial pitfalls in mind. Whether you like it or not, no business is invincible no matter how smart brilliant their ideas are, and it really does pay to be way and always stay one step ahead.