How Inexperienced Entrepreneurs Burn Through Their Budget
Up to 30% of new small businesses collapse within two years of their creation. There may be a variety of reasons behind the dramatic situation, from failure to pierce through the market to difficult to compete against aggressive brands and businesses. However, more often than not, small companies are forced to declare bankruptcy as a result of poor financial decisions made by entrepreneurs. Indeed, inexperienced entrepreneurs need to work closely with professional financial advisors for their investments and their business processes to keep the company afloat and growing. Without specialist guidance, many tend to fall for the following four mistakes that end their business career abruptly:
Accidental or intentional tax misleading
You may not mean to forget to share information with the IRS; but failure to join the Offshore Voluntary Disclosure Program, OVDP for short, could lead to a hefty penalty. Indeed, the program, first launched in 2009, is designed to encourage American taxpayers to disclose their financial assets overseas with the IRS, meaning that you need to pay taxes and interest on your international investments. In other words, the FBAR – Foreign Bank Account Report — can save your business a penalty of $100,000 or 50% of your balance ein the foreign account. Can you afford to take the risk?
Taking more risks than they can afford
Risk is part of your business very existence. Without risk, there could have been no business. Indeed, it’s a lot safer, for many professionals, to remain employed at a company, rather than start their own venture. As a result, entrepreneurs can develop an attraction to risk-taking behaviors. It’s not uncommon for ambitious and optimistic business owners to bite more than they can chew. While you can’t grow your company without a certain amount of risks, you need to make sure you can afford to take chances with your financial decisions. Some may end up costing you more than you can pay, aka ruining the company in the process.
They can’t win their investors over
Looking for investors to finance your business idea is a tricky process. Investors are not only going to judge your business viability on your idea, but also your behavior. Your idea is precious, and protecting it at all costs is your most important strategy. However, demanding your investors sign an NDA – Non-Disclosure Agreement – before you decide to share the idea with them could be the death of your business. Investors have no time to waste. If your NDA interrupts the pitch, they’re probably going to move on to the next business idea.
They grant themselves their dream salary too soon
Of course, you want to make money. The first reason why people launch a new business is the hope of replacing their current income. However, it doesn’t mean you should use your first revenue to finance your dream salary. Indeed, you need to consider all the financial duties and expenditures of your business before setting your pay wages. Paying yourself too much could put your business at risk, at least during the early years of existence.
Is your business struggling to keep positive cash flow and a profitable return? There may be a hundred different reasons for it. However, careful financial management strategies can help you to keep your company afloat until it is ready to grow. Costly tax evasion or an ambitious entrepreneur salary can eat away your company budget quicker than you can replenish it!