3 Financial Obstacles Every Start Up Business Faces

Financial obstacles are one of the most problematic issues faced by an entrepreneur today when starting a business

. These issues include inadequate financing, poor cash flow management, and mismanagement of marketing funds.

Inadequate financing

Many entrepreneurs start their business with:

Improper planning. They are start too soon and neglect to pay attention to the financial aspects of their business plan.

Inadequate cash reserves. Six months of cash flow should be reserved for the startup business.

Inadequate liquid assets. Banks are reluctant to fund a startup business as they have little or no assets.

Without 30 percent of equity invested in the business by the owner, a bank will not finance the balance needed as it is perceived to be too risky.

No long term financial plan. Planning for long term financial security requires the business to have cash flow reserves in order to meet any unforeseen obstacles.

Poor cash flow management

Entrepreneurs who are busy marketing and selling their products or services will face a rude awakening when they run out of cash due to poor cash flow management. They have:

No monthly bookkeeping. Keeping accurate bookkeeping is paramount for any startup business as it can track disbursements and receivables. They never pay attention to the three important elements of business accounting: balance sheet, profit and loss statement, and cash flow statement.

Failed to collect cash from buyers. If the business sells products or services based on credit, they often wait months before getting paid. Meanwhile, vendors expect to be paid immediately. As a result, a business will be strapped for cash and has no products to sell until they have money to purchase inventory.

Mismanage marketing funds

Often a startup business puts too much money in their marketing effort. They spend too much on traditional marketing, such as television, radio, newspapers or glossy magazines. These are all expensive and no longer effective as Internet marketing has taken over the role.

Although highly competitive, having an online presence on social media websites, such as Facebook, Twitter, in addition to the business website, the entrepreneur can lower the cost of marketing.

Creating realistic financial projections and monitoring cash flows through a sound accounting setup helps the new business to manage funds effectively. With all this information, the risk of startup is minimized and the chance for success is increased.

by: Henry Collins

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