The first step in entrepreneurship is coming up with a dynamic idea that you believe in. Once you have the core concept of your company, though, you need financing. Unless you have a significant amount of savings to invest, you’ll have to find the funding you need through outside sources. Here are some mistakes to avoid while seeking capital for startups.
Obtaining Insufficient Funding
It is understandable to be concerned about the amount of funding that you request. However, if you ask for too little, investors will understand that you have estimated unrealistically and conclude that you don’t have the financial acumen to run your startup. Additionally, you’ll run out of money early and have to go through the tedious and time-consuming process of asking for more.
Not Tracking Your Cash Flow
It’s often been said that cash flow is the lifeblood of a business. This holds true, particularly for startups. Investors want to check out your detailed cash flow analysis so they can see that you have the ability to operate your company efficiently.
Although investors often insist on equity from startups as part of the price of financing, you need to be careful about giving up too much too early. Keep as much stake in company ownership as you can in the beginning, as you may need more funding down the road.
Financing Through Credit Cards
Funding your company through personal credit cards may seem like an easy approach to financing, but it is also extremely expensive. If the business fails, you’ll be left with a damaged credit score and a heavy burden of debt. Not all startups succeed, and keeping your credit score intact makes it easier for you to try again.
Applying for Advance Fee Loans
Some financing scammers offer you a quick loan regardless of your credit history. The catch is that the lender requests an upfront processing fee and then never comes through with the loan. The Federal Trade Commission has a warning posted about this scam.
For more advice on obtaining financing for startups, contact Norris Commercial Capital.