{"id":44799,"date":"2023-10-20T15:38:45","date_gmt":"2023-10-20T15:38:45","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/five-risks-startups-take-when-it-comes-to-money-and-how-to-avoid-them-startupsmart\/"},"modified":"2023-10-20T15:38:45","modified_gmt":"2023-10-20T15:38:45","slug":"five-risks-startups-take-when-it-comes-to-money-and-how-to-avoid-them-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/five-risks-startups-take-when-it-comes-to-money-and-how-to-avoid-them-startupsmart\/","title":{"rendered":"Five risks startups take when it comes to money and how to avoid them – StartupSmart"},"content":{"rendered":"
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Whether you\u2019re getting your finances sorted for the first time or are seeking a fresh injection of capital, we outline five high risk financial areas for startups<\/em><\/p>\n

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Leigh Dunsford, co-founder of Loandesk refers to cash flow as a \u201csilver bullet that everyone wants to know how to manage\u201d.<\/p>\n

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It\u2019s a critical factor for any budding startup, and is equally relevant whether you\u2019ve been in business for five months or five years. But cash flow is just one high risk financial area that can lead a startup into hot water.<\/p>\n

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Here\u2019s a few other things to consider\u2026<\/p>\n

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1. Get your paperwork and business plan in order<\/strong><\/p>\n

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\u201cIt\u2019s amazing how many startups will approach a bank without pre-planning,\u201d Dunsford says.\u201cBut banks are document heavy and if you have a casual conversation, you\u2019re sure to be turned away.\u201d<\/p>\n

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It\u2019s common practice for business bankers to ask for a comprehensive business plan, and in most cases, they\u2019ll also want to see your assets, and what supplementary income you have to service the amount borrowed.<\/p>\n

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\u201cIf you can\u2019t provide answers or show these things, you just won\u2019t get a loan. It\u2019s a tough love situation as far as the bank is concerned,\u201d he says.<\/p>\n

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2. Choose potential investors wisely<\/strong><\/p>\n

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If you\u2019re seeking finance, particularly from investors, remember you\u2019re not just after cold hard cash.<\/p>\n

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\u201cYou want people that can help your business, people that can open doors for you, or provide advice on things like when to pivot,\u201dsays Lars Lindstrom, chief executive officer of StartUp Victoria. \u201cIt\u2019s about more than just the money.\u201d<\/p>\n

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\u201cYou also need to know who\u2019s looking for what as an investor,\u201d says Clare Hallam, chief operating officer at online venture builder Pollenizer.<\/p>\n

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Hallam cautions that some investors are happy to be in the background, whilst others can be a \u201chands-on\u201d nightmare.<\/p>\n

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\u201cIt\u2019s important to find the right investor, it\u2019s like a marriage and it\u2019s crucial to your success. Rarely does a startup get it 100%right, but think about how you\u2019ll grow with the investor in the future, and ask yourself, \u2018am I taking the money for the right reason\u2019?\u201d<\/p>\n

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3. Know how much your idea\/product\/service is really worth<\/strong><\/p>\n

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When you\u2019ve put your blood, sweat and tears into a startup, it\u2019s easy to believe your own hype. But Hallam cautions against it, and warns that if you follow the angel investment or venture capital path, you may have to give away a bigger slice of your startup than you first bargained for.<\/p>\n

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\u201cA lot of entrepreneurs think their startup is worth more than what an investor would value it at. But you need to be able to show a real solution to a real problem, and know who your customers are. You also need to be able to show some traction \u2013 you need to prove that you\u2019ve already started solving that problem for customers. And that you have customers who are prepared to pay dollars for it,\u201d she says. \u201cEven then, you might have to give away a bigger slice of the pie than you intended.\u201d<\/p>\n

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4. Don\u2019t underestimate time and capital<\/strong><\/p>\n

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\u201cEverybody underestimates the amount of capital they need when starting out. It always costs more and takes longer. It\u2019s universal,\u201d Lindstrom says.<\/p>\n

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Hallam agrees. \u201cStartups often don\u2019t see it until they’re almost out of money, or they underestimate the timeframe it will take for money to be received in their accounts. Even if they secure investment, it can take months for it to appear in their bank account, and they don\u2019t have a contingency plan if it falls through.\u201d<\/p>\n

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So what to do in these situations?<\/p>\n

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\u201cGo out and get some customers, and get some traction. Get people interested in your product and traction will attract money. You just keep doing what you\u2019re doing, close deals with customers and when you get closer to the abyss, you go and raise some money because now you can prove that customers want your product or service. It\u2019s very hard to raise money before you\u2019ve done anything, but there\u2019s plenty of money for people that can execute good ideas,\u201d Lindstrom says.<\/p>\n

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5. Don’t overcommit your finances<\/strong><\/p>\n

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Once you\u2019re officially \u2018in business\u2019 it\u2019s tempting to want to make a big splash with a cutting edge logo, fancy business cards, or sleek offices. But as Dunsford notes, a bank account flush with borrowed money always needs to be paid back.<\/p>\n

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\u201cWhen you get a loan, you need to plan. It\u2019s not to pay for a new office chair or desk \u2013 it\u2019s to grow your business. You need to spend that money on income producing activities. Borrowed money is an investment in the business. It needs to be invested into something that\u2019s going to generate sales which will make you profit, so you can make the payments back, and then hopefully one day you\u2019ll not have to borrow money,\u201d he says.<\/p>\n

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Dunsford also recalls stories of startups that have overcommitted on their fixed costs. \u201cWe\u2019ve had startups come to us and they have a big office space with just two people working in it. In the early days, you really need to keep your fixed costs down and stick to variable costs. Don\u2019t lock yourself into a lease for an office space or take on staff you really don\u2019t need.\u201d<\/p>\n

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Written by: Megan Gamble<\/p>\n

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This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..<\/span><\/em><\/p>\n

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Success starts here<\/em><\/strong><\/p>\n

If you\u2019re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.<\/em><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

Whether you\u2019re getting your finances sorted for the first time or are seeking a fresh injection of capital, we outline<\/p>\n","protected":false},"author":1,"featured_media":59083,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,25,3,4,23,1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/44799"}],"collection":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/comments?post=44799"}],"version-history":[{"count":0,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/44799\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media\/59083"}],"wp:attachment":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media?parent=44799"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/categories?post=44799"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/tags?post=44799"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}