Business Mentor: How rookie entrepreneurs can avoid financial losses

Armando Bartolome

Posted at Jan 15 2022 09:20 AM

About 3 out of 4 startups are likely to fail in their first year due to different factors. One major cause of why businesses fail in their first few months is that entrepreneurs behind them were not prepared financially, physically, and emotionally. 

Apart from having the funds to start a business, one should be ready to "expect the unexpected" and continue learning how to run the business. A return on investment is unlikely to happen in the first 6 months, depending on the kind of business. But losing a large amount of money due to a high overhead cost against the actual sales is a factor.

As a startup, you need to weigh how much you need to shell out to run the business. Sometimes, entrepreneurs can get too excited and add so many things, which are better left done when the company is already getting more revenue. 

Some entrepreneurs spend so much money making unnecessary purchases and overlook their projected profit every month. Taking a loan means paying the loan as soon as the business starts running. What happens if all the projected profit of the company is not even enough to pay the loan? Now, that will definitely be a huge problem.

Scenario 1: The business is not gaining traction as anticipated as it does not provide high-quality products and/or services. 

Not realizing this can instantly mean losing the company in just a few months. Imagine your overhead costs: rental fee, utility fees, employees' salary, taxes, and loan payment. If you do not have enough funds set aside, how can you continue to operate?

Scenario 2: The business is slowly gaining customers each month, and although ROI may still be months away, you realize that the profit you make can cover all your overhead costs. 

See the difference? You need to do a lot of work to gain a spot in the market. While there is no need to hurry to hit the top spot, remember to maintain the business as you planned. Hence, creating a business plan is always essential to ensure that it can serve as your guide as your business starts operating.

To avoid substantial financial loss in your first year in business, here are some tips.

1. Keep your expenses low 
Carefully choose what should be prioritized. Only focus on the essentials. You can always upgrade once the company picks up and gives you a steady income.

One of the failures of rookie entrepreneurs is that once they realize that they are earning, they use the money to invest in another business or add more products. This may not be a wise move during the first year. The first five years are crucial. An entrepreneur needs to ensure that the sales are going up and not the opposite way. Focus more on how to manage the business properly.

2. Failure to hire experts to do specific jobs 
Some entrepreneurs might be too conservative in spending on their startups. I suppose that fear of losing money is always on their mind. However, if you are not knowledgeable in certain areas, never attempt to take a shortcut by doing it all by yourself. Always consider hiring others to do tasks such as bookkeeping or accounting. You wouldn't want to blame yourself for being too stingy.

3. Mixing personal and business finances
While you need a certain amount of the profit as your share from the business, it is always best to not overspend. Just because you hit past the "profit goal" for the month doesn't mean you can use it unnecessarily.

4. Undervalued products and services
Your aim may be to gain more customers. However, it does not mean that you need to set prices too low. You need to check on your competitors' prices to assess how much you will charge your customers. You may be losing out on recurring customers and profits primarily because the low cost you set made your customers think you are offering low-quality products and/or services.

Have a clear understanding of how much it would cost to stay in business and ensure that your pricing reflects those costs to keep your business running.

For more information, you may contact Armando "Butz" Bartolome 
by email:
FB Page: Butz Bartolome


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