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Startup Finance Faux Pas: How To Protect Your Investment

Building a company from the ground up can be exciting and extremely lucrative, but there are major pitfalls around every corner. According to the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation, at least 75 percent of small businesses fail within the first ten years. If you want your startup to survive for more than a decade, then take a look at these tips on where you should invest your money and how you can protect your capital.

Comprehensive Market Research

Before any money is spent on production, business owners must conduct extensive market research. The information that is gathered with this research could make the difference between success and failure. Market research is generally conducted when drafting a business plan, and it should contain information on local competition, international competition, key demographics, and the state of the industry as a whole. Research should also be done in order to find new sources of capital and investors. It may take several years to become a profitable business, and in that time, you may need to secure new investors. Will you seek out many small investments from a company like Seed Equity, or go for bigger fish? Determine which makes the most sense with your business model and earlier market research.

An Accountant or CFO

One of the most common mistakes new business owners make is trying to tackle their company’s finances with no background or formal training in budgeting. For the vast majority of businesses, a good accountant or CFO will save much more money than they charge. Taking the time to build a relationship with one of these consultants will also help you avoid future financial catastrophes well before they become a problem.

Good Customer Service

You will need to invest both time and money into your customer service in order to build a sizable base of customers. This is especially important for smaller companies that are much more reliant on every new customer or client they acquire. According to an article published by the Database Marketing Institute, companies that created clear customer service programs were able to increase their profits by 18 percent in just six months. These companies focused on tangible changes such as following up on bids and contacting clients to inform them of new specials.

Branding and Marketing

No matter how revolutionary your product or service might be, companies cannot climb out of the red until they begin reaching potential customers. Some specialists claim that nearly 20 percent of your annual gross revenue should be reinvested back into marketing, but that number can be brought down if you are smart about your tactics. This includes thrifty branding strategies such as creating a strong social media following and connecting with customers via email.

Being able to track where your money is going and how it is affecting your bottom line will give you an advantage when it comes time to make big financial decisions.

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