Five Mistakes to Avoid When Funding a New Business

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When you’re getting a new business off the ground, you’re likely to be seeking funding – whether that’s through a bank loan, investors, or even a personal credit card.

It’s easy to go wrong at this stage, and mistakes here can seriously hamper your business before it even gets off the ground.

Here are five key things to avoid:

Mistake 1: Getting Through Your Money Too Fast

Whatever type of funding you secure, you’ll need to make sure that you’re using your money wisely. It can be tempting to keep spending and spending without a realistic idea of how long it’s going to take for the business to become profitable.

This burn rate calculator is a handy way to check how fast you’re getting through your capital … and how soon you need to start turning a profit.

Mistake 2: Not Having a Clear Idea About How (and When) You’ll Make Money

However great your business idea is, you’ll need to be very clear about how (and when) you’re going to start making money. It’s easy to get a bit carried away here: you might imagine that you’ll be turning a profit very quickly, for instance, or that you’ll see a dramatic increase in revenue month on month.

Try to introduce some realism: you don’t want to end up securing funding at the cost of huge expectations from your investors.

Mistake 3: Expecting to Get Funding Quickly

You might think that it’s quite easy to get business funding, but while some sources of funding can be obtained quite quickly (such as credit cards), if you want significant investment, it’s definitely going to take some time. Allow six months to secure funding – don’t expect it to happen in a matter of weeks.

“Give yourself six to eight months to raise each and every time. I know even amazing companies that took six months to raise funds. It doesn’t happen overnight.” (John Rampton, quoted in Don’t Make These Common Mistakes When Raising Business Funding)

Mistake 4: Not Researching Your Potential Investors

You could spend weeks carefully preparing a proposal and pitching it to potential investors … only to find out that your business isn’t quite the sort of thing they support.

This is why it really pays to do your research. Look into other startups that have been funded by your potential investors, and make sure those gel with what you are doing.

Mistake 5: Raising Too Much Money

It might seem odd … but raising too much money can be as big a mistake as raising too little.

If you have far more than you actually need to run your business, it’s going to be very tempting to spend on things that aren’t necessary (like a swish office space) and there won’t be the same sense of urgency to launch your products/services and start turning a profit.

Seeking funding – and using it well – can be one of the trickiest things about starting a small business. By avoiding the above mistakes, you’ll be putting yourself in a great position to succeed.

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