Avoid these common financial mistakes so your startup doesn’t die on the vine – TechCrunch


Free yourself to be a founder

The world of startups it can be a roller coaster. While investment continues to come in, with founders and investors looking for the next unicorn, the reality is that 90% of startups fail, with more than half of those sinking in the first three years.

I founded two companies that I grew and sold (Mezi and Dhingana). I encountered many of the problems new founders face, learned on the job, and fortunately persevered. Using the knowledge I gained from my previous companies, I founded a third, Zeni, to try and help founders make more informed and sustainable financial decisions.

For many founders, a transformative idea and an initial outside investment doesn’t translate into understanding the underlying financial complexities of running a business.

Whether you’re wrapping your seed round or Series B, avoiding these common problems is the best way to ensure you’re on solid ground and free to focus on your vision.

Why most startups fail

Startups fail for a variety of reasons. Some fail to adapt to the product market in a scalable way. Many others simply run out of money. While the above two reasons are often cited as the top two reasons for the startup failure, they are also related. If you don’t solve a market problem and generate customers, you will eventually run out of money.

Unfortunately, many of the startups that fail shouldn’t. They are run by brilliant entrepreneurs with a great idea. But for many founders, a transformative idea and an initial outside investment doesn’t translate into understanding the underlying financial complexities of running a business.

When you look at the various complexities founders face in understanding business finance, there are three main hurdles they face:

  1. Fragmentation of financial systems.
  2. Time-consuming manual tasks.
  3. Lack of financial information in real time.

All of the above problems add to the workload and pressure on the founders, which can lead to burnout. Owners, on average, they spend about 40% of their working hours in tasks such as hiring, human resources and payroll. While hiring is an integral part of the founders’ day-to-day role, other administrative tasks related to finance, human resources, and payroll distract founders from focusing on their overall vision and goals.

The good news is that by being aware of the problems above, you can resolve them and eliminate the consequences of burnout, distraction, and ultimately failure. Let’s talk about how.

Consolidate fragmentation

Financial decision making and tasks for most startups begin and end with the founder. This means that accounting, bill paying, billing, financial projections, employee payments, and taxes run into a bottleneck. Worse, each of these functions requires another employee, vendor, or outside expert (financial firms, administrators, CFOs, public accounting firms), each of whom uses their own software and applications to achieve their goals.

Each of these parties reports to the founder, who is then in charge of making sense of everything and disseminating the information to the entities that need it. This means that not only is everything slower, but things are often overlooked as communication can become a serious problem.

Worse still, this creates cash flow problems, as invoices are not paid, invoices are not sent, and important financial documents are delayed. I have seen unreported income and unsent and uncollectible invoices due to the fragmentation bottleneck system that most founders experience.


feedproxy.google.com

Leave a Reply

Your email address will not be published.