by _comunica2punto0

#marketing Startups: 5 Financial Face-Plants You’re Dangerously Close to Making

In Marketing on 21 julio, 2017 at 2:47

geralt / Pixabay

Were you ever naive about money growing up? If so, you’re not alone. Money is a tricky thing, and it can take years to master managing your finances. After all of this hard work, you might assume—or at least hope—that these hard-earned lessons will transfer to other areas of your life, but is this the case? Luckily, when it comes to business financing, the answer is yes. There are a lot of tactics that work well in both personal and business money management.

Equipped with the knowledge you’ve gained managing your finances, you might be tempted to rush off and start managing your startup’s capital, but this isn’t something you should rush into.

You were naive about money once, and chances are this phenomenon hasn’t totally subsided. In fact, you might be dangerously close to making a few business financial face-plants this very moment.

If you’d like to learn more about these lurking mistakes and how you can avoid them, read on:

1) Spending Too Much Time Chasing Investment

If you’re starting a new company, you might feel like you need to work with an investor or venture capitalist to receive the funding you need. These external financing options are often acclaimed among entrepreneurs, but they shouldn’t be seen as the be-all or end-all because they have their downsides, too. For example, these types of financing often take a significant amount of time to secure.

Many startups spend an inordinate amount of time looking for external funding, which opens up the playing field for other startups to surpass them in the meantime. To work around this issue, startup owners that have a healthy amount of savings or a positive credit history might want to invest in their own businesses. Although this method won’t work for everyone, it’s a viable option for startup owners that have the right personal backing in place.

2) Getting Too Close to Your Limits

Credit experts often advise consumers to keep their credit card balance below 30% of their credit limit. For example, if you have a credit limit of $1,000, you should never utilize more than $300 of it at any given time.

In business, your credit utilization ratio is still important, but it’s a bit different than the 30% personal credit utilization ratio mentioned above. According to Experian, one of America’s key three credit bureaus, the people with the best credit scores use only 8% of their available credit. In general, the lower you can keep your startup’s credit-to-debt ratio, the better.

3) Taking On Too Much Debt

Another common pitfall startups often face is taking on too much debt. As a business, the amount of debt you have is the second biggest component of your credit score, so it’s paramount that you are cognizant of your running debt at all times.

There’s no hard-and-fast rule that all businesses should follow when it comes to taking on debt, but there is a way that your startup can determine what’s right for its operations—the debt-to-income ratio. This calculation provides information that will help you understand how much debt you can take one and reasonably pay off every month.

4) Mindlessly Incurring Expenses

If you start your venture with personal savings or your credit, you might be tempted to overspend. After all, you’ve invested your hard-earned money into your company, so should you have it all, from a nice corner office to a company car?

In the future, these things might be in the cards for you, but it’s often better to bootstrap at the beginning to keep costs low. Many startups fail because they’re unable to pay back the debt they incur at their inception, but you can avoid this common pitfall by making mindful and smart financial decisions from the get-go.

5) Only Paying Bills Reported to Credit Bureaus

It’s not uncommon for entrepreneurs to struggle with meeting their payment requirements. When this happens, many begin to focus on the bills that are reported to credit bureaus, but this can be a huge financial mistake—especially if you neglect to pay your other bills in the meantime.

For example, if you decide to pay your credit card bill but fail to pay your rent because the latter isn’t reported to an agency, your credit might still be negatively impacted. While successful rent payments aren’t reported bureaus, if you miss even a single rent payment, your landlord or leasing company can choose to report your delinquency, which can negatively affect your credit.

Leave Face-Plants to ‘America’s Funniest Home Videos’

As an entrepreneur, there are many stumbling blocks you’ll face—but bad credit doesn’t have to be one of them. As long as you heed the advice above and stay up-to-date with positive business credit practices, you’ll be well on your way to a great credit score.

via Business Articles | Business 2 Community


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