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Entrepreneurial Mistakes to Avoid: Under-Capitalization of Your Business

Startup_Cash_FlowWe hope you enjoyed our first blog in our series of mistakes to avoid when starting your own business.  The first mistake you need to avoid when thinking of becoming an entrepreneur is to understand that it takes a lot of hard work, long hours, and little pay (for the first year or two).  People can talk the talk, but can they walk the walk?  Check out the first post in our entrepreneurial series to learn more.

I’ve made a lot of mistakes over the years and, as the owner of two multi-dealership companies, I’ve seen a lot of new business owners do the same.  This series is intended to help you avoid these mistakes, or at least be aware of them so you know what to look for if you do happen to stumble into them.

Entrepreneurial Mistake #2:  New Businesses Almost Always Under-Capitalized

New businesses are almost always under-capitalized.  As a result, it takes longer to make things happen.  Not only are you making less money than you thought you would initially (seeentrepreneurial mistake #1), but you don’t have the money to invest in building your business.  The reason is you either didn’t have enough or acquire enough money to begin with.  The problem is that this could cause your business to come to a screeching halt if you run out of money and can no longer support the business you were hoping to start.

I discovered when it comes to raising money; always raise more than you need.  If you think you need $100, get $150. If you think you need $200,000, get $300,000.  You never get in trouble being over-capitalized.  I’m not even sure that’s a word, but you get my point.  Remember that cash is king.

Here are 2 tips to help avoid under-capitalization in your business:

  1. Have an in-depth business plan:  Your business plan is oftentimes the first thing investors will see.  This will allow potential investors and lenders to learn more about your business and (hopefully) educate them and entice them to invest.  Spend time on your business plan, as it will also serve as a road map for starting and running your business.  The business plan is a critical component to making sure your business stays on track as a start-up.
  2. Get an accountability partner:  Many business owners start their companies so they can be their own bosses and control their own destiny.  What many entrepreneurs don’t realize is that even CEOs of public companies are accountable to a board, which gives them a team of people to be accountable to as well.  Business owners who have a mentor or coach will likely outpace their competition because they have an accountability partner working with them along the way.

Interested in learning about the remaining 2 mistakes to avoid when starting your own business?  You can download our ebook here, or you can subscribe to our blog and we’ll update you next week with mistake #2.

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