1. What are the most common money mistakes you see entrepreneurs making that derail their businesses early on?
Not forward-planning. When you’re just starting out there is a lot to do in the immediate term, such as becoming legally established and growing your core base of customers. This can quickly lead to founders losing sight of the bigger picture and their goals get put on the back burner because they are trying to sort everything out at once. As a result, when it comes to the bills and taxes, they realise they don’t have the budget and end up having to close. Poor financial management is the biggest killer of businesses, and I want more to be saved.
I have identified 3 red flags which are sending people off the deep end:
· Overspending before any real traction – Websites can be the most time-consuming and costly. If it’s not essential in the beginning, then avoid investing in a renowned website designer until it’s necessary. The same goes for other gadgets and business tools which may not boost productivity in the long-term and instead leave you with more outgoings.
· Underestimating costs – Hidden fees can leave a nasty scar. Software subscriptions, taxes, shipping costs can all add up and make you feel squeezed. Do in-depth research and take into account every expense regardless of how small it is. Ask your supplier questions so you’re not shocked when an unexpected invoice doesn’t end up in your inbox.
· Ignoring cash flow – Your revenue may look outstanding, but have you recorded every expense and restrained yourself? Pay off those bills and then you can boast about your profit.
2. How can founders balance careful cash-flow management with the need to invest in growth opportunities?
There is a set criteria that founders must follow before they can feel confident to invest in their business expansion. Growing too quickly can have its drawbacks as you may not be prepared for the sudden influx of orders, and your supply chain ultimately collapses because of the demand. Sustainable growth is key so you can keep up the momentum and have the cash flow available to invest in the right opportunities.
Cash flow forecast can identify issues, bring in expert who can talk you through the steps you need to take and help work out a plan of action. It’s ok not to know it all, but you must be prepared to seek out the answers yourself.
I recommend:
· Divide your capital – Allocate a set % of your cash (say, 20–30%) toward growth initiatives, and protect the rest for operations.
· Test small, scale fast – Spend small amounts to test ideas (ads, partnerships, new products). If it works, then go bigger.
· Negotiate payment terms – Stretch out payables and speed up receivables to create breathing room.
3. Which financial indicators should business owners monitor closely to catch potential problems before they become crises?
Business owners should track the following key indicators consistently:
· Cash flow – the key signifier of financial health. Monitor inflows and outflows weekly to identify trends or shortfalls early.
· Gross and net profit margins – shrinking margins can indicate rising costs or pricing issues.
· Accounts receivable turnover – a slowing collection rate can signal future cash flow problems.
· Current ratio assets / liabilities – a ratio below 1 may suggest liquidity issues.
· Burn rate (for startups) – knowing how fast you’re spending relative to your runway is essential for survival.
Regular financial reviews help catch red flags early on, long before they become emergencies. Cashflow reviews should be weekly at an absolute minimum.
4. How important is having a detailed budget, and what pitfalls do companies face when their budgeting process is too loose or overly optimistic?
Without a budget, you are tempted to overspend. Think of it like you are doing your supermarket shopping. You have a list of groceries and a weekly budget in mind that you may have decided on with your partner. But you’ve gone shopping on an empty stomach, something you didn’t plan to do, and you get your receipt and you’re twice over budget! It’s the same scenario in business, only you have to be accountable to the taxman and your suppliers.
Having big dreams is great – but don’t let them turn into nightmares keeping you up at night because you went overboard. You don’t have to have all the latest snazzy tech, as long as you are employing the tools that are doing you a service, and have a supportive team, then that’s all you need. Comparison is the thief of joy and in business that can be lethal.
5. What role does pricing strategy play in avoiding money mistakes, and how can businesses refine their pricing to protect margins?
High profit margin is key when it comes to selling. Ask yourself what are the parameters your team needs to meet? Constantly analyse the profit margin, does it need to be lower/higher – this will help you understand how well your business is doing.
6. How can entrepreneurs avoid over-leveraging or taking on too much debt when scaling their operations?
If your revenue is unpredictable then I would avoid long-term loans. Only borrow for things that will clearly generate future revenue e.g. buying a machine that increases output. Avoid using debt to cover operating losses and don’t take on more than your cash flow can comfortably repay.
7. What best practices do you recommend for managing working capital and inventory to prevent unexpected cash shortages?
In addition to forecasting cash weekly, you should tighten payment terms and follow up overdue invoices promptly. You should also be confident in negotiating supplier terms – extend payable periods where possible to better align with receivables.
Avoid overstocking, use real-time inventory management systems to balance stock availability without tying up excess cash. Finally, build a buffer by maintaining a cash cushion or line of credit for unexpected disruptions.
Smart working capital management is about balance – moving quickly without overstretching resources is what you should be aiming to achieve.
8. When you evaluate a potential acquisition or turnaround, what financial red flags do you look for first?
If they don’t have profit and loss, a balance sheet and cash flow forecast – that’s a red flag. Knowledge is power, and if people don’t understand and don’t make the effort to get those things done, a deal can’t be made because it shows a lack of commitment and focus. It’s not about the numbers because they can be worked out with a mentor.
9. How should business owners approach financial forecasting and scenario planning to steer clear of common setbacks?
Forecasting isn’t about having perfect predictions. We don’t have a crystal ball at our disposal (unfortunately), but we must be realistic and prepare for 3 scenarios – best case, worst case, and expected case. Have regular check-ins with yourself, map out every quarter and interrogate every figure so you know if the worst should happen you can take care of it.
10. What criteria do you use to decide between seeking external financing versus bootstrapping, and how can founders make that choice wisely?
It’s a personal choice to a degree. Do you want to sell in 5 years’ time? If so, create the forecast based on your current figures – they don’t lie and they will give you the best idea. Must weigh up the risks and see if it’s worth it. Must have foundations in place if you are taking external funding.
Bootstrapping can work if you are able to keep up with the speed of growth within your business.
