← Techstars Blog

The startup phase is an exciting time for a new business. As an entrepreneur, you look forward to making your fascinating ideas become reality. But the discouraging news is that no matter how fantastic the business concept, most startups fail as a result of poor financial choices. Success means marrying a winning brand with smart business practices and applying the power of knowledge – with good financial insight and proper preparation, you can transcend the statistics. Here are five common financial mistakes your startup should avoid at all costs.

Not Understanding Your Market

Market research should be a solid part of any long-term business effort because it gives you a big picture view of your real business prospects. You’ll know how much of a demand exists for your product or service and have a clear idea about the standard prices in your industry. You can gain unique insights about your target customer and your competition, and learn what it will take to stand out. Without a good grasp of the market you plan to break into, you will likely make poor business projections. 

Not Having Enough Startup Capital

Many new business owners start with too little capital. They unrealistically expect that their first profits will come quickly and additionally underestimate the operational expenses they must face in the meantime. They also may not budget for emergencies or an unexpected turn of events, such as malfunctioning office equipment or an urgent need for building repairs. It’s important to dream and be positive, but going in without enough money to cover planned startup expenses is like feeding yourself to crocodiles. Such a move can seriously cripple your business potential and can end up swallowing your personal assets. 

Failing to Record Cash Flow

Failing to record where and how your money comes and goes makes it hard to make realistic business forecasts. Your expenses can quickly get out of hand, and untracked sales and payments can create confusion. It’s imperative to find an accounting system that works. An inexpensive option like Sage accounting software can be a lifesaver in the long run by streamlining your accounting tasks. The quicker you can get a handle on your records, the more control you will have over your business’ financial future. 

Under-calculating the Hidden Costs of Operation

You may be a gifted entrepreneur, but when it comes to financial prudence, it can still be easy to miss the finer points. Business owners make the common mistake of projecting obvious operational costs without considering hidden and associated costs, such as accounting for the cost of a heavy-duty laser printer without budgeting possible printing expenses. Many of these undocumented figures quickly add up. Before you know it, you’re out of money before you’ve even made a sale. It’s good practice to overestimate your expenses to accommodate a sensible margin of error. 


Entrepreneurs may be so taken with their business idea, that they end up overspending to meet a vision of perfection. They might invest in the high-end office space, instead of another more economical option. Or spend a lot on expensive design and decor, when there are thriftier high-quality alternatives. Still yet, they may make hefty, long-term contracts with service providers or hire too many employees. Overspending can quickly sink a new company. In the beginning, it’s more important to save. Once your business is stronger, you’ll have a lot more freedom to spread your wings.

Overall, you should match the higher ideals of your entrepreneurial vision with equal amounts of practicality. Your new enterprise has the potential to grow into a strong and fruitful success, but you can’t depend on a stroke of luck to get you there. You’ll need a good roadmap to track your way. Your financial decisions can mean the difference between swerving off the map and meeting realistic mile markers that ultimately allow you to excel. By doing your homework and learning how to avoid the above pitfalls, you will be well ahead of the game.

JT Ripton JT Ripton
JT is a business consultant and freelance contributor for sites like BusinessInsider, Entrepreneur.com, The Guardian, Tech Radar, etc. @JTRipton

  • Yasir Haseeb

    First and definitely the most critical, not assessing the market. You need to know exactly how your business model fits into the market, who your competition is, and how the supply/demand will affect your pricing. Making baseless predictions on anticipated revenue is the most common and most devastating mistake entrepreneurs make. In your financial analysis in your business plan, ask yourself how you came up with the anticipated revenues.