Whether you’re starting a business from scratch or acquiring one that already exists, you need the funds to make it happen. We’ve talked in length about different TYPES of funding options and how you can do a bit of “hacking and stacking” to work it out in your favor. (Catch up here.)
But what happens after the deed is done? After all the research, paperwork, and time, the money is finally yours, and you’re ready to take the small business world by storm. You want to make the most of this opportunity and this investment; however, there are seven common post-funding no-nos that many small businesses make once that money hits their account.
1. Poor Planning:
Not having a clear plan or strategy for how you will use your funding is a big no-no. You gotta have a detailed plan in place for how you’ll use these new funds to grow your business and achieve your goals. Every dollar should have a job and a purpose.
2. Spending Too Much:
Listen, having that big chunk of money might make you feel like a Rockefeller, but that doesn’t mean you should be spending like one. Resist the temptation to blow it on bells and whistles and unnecessary upgrades in the name of “scaling and growth.” Excessive spending can erode your profits, leave you unable to pay your bills, reduce your ability to grow, and make you more vulnerable to market changes. There will also be plenty of unexpected costs you probably haven’t considered yet, and you’ll want that cushion. Be prudent.
3. Spending Too Little:
Yes, we know we just told you not to spend too much, but you also shouldn’t spend too little. (That funding is there for a reason, Ebenezer. Give Cratchit a piece of coal, damn it!) Keeping a closed fist on the purse strings can have a negative impact on your business’s ability to get its footing, take advantage of or respond to changes in its industry, or compete in its market and achieve its goal. For example, a small business that spends too little money may be unable to invest in new tech or equipment or bring on a team member that could expand operations. You should strive to strike a balance.
4. Not Tracking Expenses:
Don’t want to make the mistake of spending too much or too little? Track your expenses. (Sometimes, the best answer is the easiest answer.) Keeping careful records of how you’re using the funds you received will help make sure you’re using the money in ways that align with your plan. Invest in accounting software to record and organize your financial transactions. This will help you accurately and efficiently know where your money is going and provide insight into your financial performance.
5. Not Communicating with Investors
If you have investors, maintaining a good relationship and keeping the lines of communication open is imperative. They should stay informed about how you’re using the funding and the progress you are making toward achieving your goals. Consider scheduling regular (brief and concise) updates. Be honest and transparent. Communicate bad news promptly, but don’t be afraid to toot your own horn and let them know when things are going better than expected. Acknowledge their contributions beyond their monetary support - and even ask for their advice when appropriate. They are, quite literally, invested in your success, after all. Keeping up good relationships with them is just good business, and you never know when you might want to approach them again to invest in a new opportunity.
6. Getting Distracted from Your Core Business
You might be tempted to use the funding to pursue new opportunities or projects that may or may not be directly related to your core business. However, it’s essential to stay focused on your core competencies and not get distracted by side projects that may not contribute to the long-term success of your business. We call this SOS: Shiny Opportunity Syndrome.
7. Not Seeking Additional Funding
Funding isn’t always a one-and-done situation. A common mistake many small business owners make is assuming that the funding they have received will be sufficient to support their growth indefinitely. That’s not always the case. When you consider factors like inflation, recessions, supply-chain disruptions, equipment failure, and changes in the industry, you may find yourself in a position to need a few more Benjamins. It’s important to continually assess your funding needs and seek additional funding to support the growth of your business.
By understanding and avoiding these common post-funding no-nos, small businesses can increase their chances of success and achieve their goals.