When starting your own company, advice is going to come at you from all directions. Some of it will be legitimate advice that will help you navigate your new venture, while some of it will be well-intentioned but misguided. As financial professionals, Forbes Finance Council members have heard the good and the bad – and have learned to differentiate between the two. Below, five of them share common financial advice that actually does more harm than good.
Clockwise from left: Jessica Mah, Louie Balasny, David Ehrenberg, Elle Kaplan, Marjorie Adams. All... [+]
1. Speed And Spend Your Way To Success
I've been told you must speed your way and spend your way to success; this has never worked for me personally. There’s been so much hyper-growth pressure by investors over the years, everyone wants a big fast exit, but truthfully, if you hedge your growth by doing what I call “pseudo-bootstrapping,” you’ll generally be on far less risky footing. I always like to keep a minimum 18-month runway of cash. - Jessica Mah, InDinero
2. Do Your Own Bookkeeping To Save Money
Save money and do the bookkeeping yourself until you start generating revenue. This usually results in using Excel instead of accounting software like QuickBooks or Xero, and ultimately costs more in the long run due to cleanup (if you're not an accountant there's a high likelihood you are not classifying and tracking everything appropriately).There will also be a cost to migrate from Excel to a real accounting platform, which this could have been avoided if you were using one from the start. - Louie Balasny, botkeeper
3. Start With A Cash Accounting Method
From the accounting side, we see companies that are starting out with a cash accounting method, rather than an accrual accounting method. It can be easy to start accounting on a cash basis, but as your business scales, you'll inevitably need to move to accounting on an accrual basis. The longer you wait to make that change, the more complex (and potentially expensive) it can be. - David Ehrenberg, Early Growth Financial Services
4. Worrying Too Much About Taxes
Setting up your books only for tax purposes is a mistake. Business owners frequently struggle with the difference between financials for tax and financials for good business management. Tax has a fairly simple way of looking at the books and allocating accounts to the tax return. For good business management, you need financials that give you accurate data, so you can make educated decisions. - Marjorie Adams, Fourlane
5. Constant Growth Is Needed
There’s a “grow or die” mentality in the startup world that often gets passed off as advice to others. The truth is that only the right type of growth actually leads to success. Over-expansion often leads to compromising on what made the firm successful in the first place and presents a serious cash flow problem. That's why you should have a serious vetting process before implementing any growth. - Elle Kaplan, LexION Capital
