The top 5 small business funding mistakes

Funding Mistakes

Last Updated on December 21, 2022 by Selina Parker

Starting a small business is no easy task. There are many things to consider- from the initial planning stages to marketing your business to customers. One thing that small business owners often overlook is funding. This can be a huge mistake, as, without proper funding, it can be challenging to grow and succeed. This article will discuss six common small business funding mistakes and how you can avoid them!

Importance of Small Businesses

Expanding a business could quickly become a huge problem, filled with risks of all kinds. According to an Office of Advocacy study conducted by the Small Business Administration (SBA), around 21.3% of small businesses fail in their first year. Furthermore, Statista reported that 75% of startups that received funding failed. According to Statista, the number of firms that have failed after receiving money is staggering: 75%.

New business owners often have trouble running their own business for various reasons. If you have a business idea, before you execute it, you should be aware of the common small business mistakes so you won’t become like the statistic above.

Funding Mistakes Small Businesses Make

Funding Mistakes

A successful business learns from its failures and strives to avoid repeating the same mistakes. To help small businesses get started on the right foot, here are six funding mistakes small businesses make- and how to avoid them!

1. Relying on a Single Source of Funding

One of the most common small business funding mistakes is relying on a single funding source. This could be personal savings, loans from family and friends, or even credit cards. While it may be tempting to put all your eggs in one basket, so to speak, it’s not a good idea. What if that funding source dries up? You could be in big trouble.

Multiple funding streams are essential so that if one dries up, you have others to fall back on. This could include small business grants, financial institutions loans, or crowdfunding.

2. Not having a business plan

Your business plan sets the direction for your business and should be the first step in the funding process. Without a clear plan, it can be difficult to articulate your vision and goals to potential investors. Furthermore, a well-thought-out business plan will give you a roadmap to follow to make informed decisions about where to allocate your resources.

3. Poor recruitment process

The people you work with directly impact your business. That’s why it’s so important to have a strong recruitment process in place to ensure you’re hiring the best possible candidates.

Recruiting new employees is essential to running a successful business, but small business owner doesn’t take the time to properly plan out the process. This can lead to mistakes like hiring too many employees or those who lack the necessary skills and experience. Using the right recruitment strategies will help you employ productive, qualified workers.

After you receive funding for your business, don’t worry about putting together a large team that can compete with similar companies – focus on hiring qualified professionals instead.

Overpaying employees or hiring people for unnecessary positions is highly discouraged because it will strain the company’s budget.

4. Failing to Research Your Competition

Funding mistakes

Another small business funding mistake is failing to research your competition. This is critical in starting any business, as you need to know your competitors and what they’re offering. This should be a critical part of your market research because it will help you determine your unique pricing, what you’re offering, and how to reach your target audience.

Not only should you research your competition, but you should also keep tabs on them after you start your business. If this is part of your business strategy, you can see how they’re growing and changing and adjust your strategies accordingly.

5. Ignoring Your Credit Score

Your credit score is vital for several reasons, not the least of which is small business funding. Getting approved for loans or lines of credit will be difficult if you have a low credit score. This could limit your options and make getting the funding you need harder.

It is essential to always check your credit score and work to improve it. A few small business credit cards can help you do this, as well as some other methods.

Your credit score is one of the first things lenders will look at when considering small business funding, so ignoring it could be a costly mistake.

6. Undefined business model

The business model is how a company makes money. Small business owners often overlook this area and wonder why their business is not profitable. There are various types of business models, so it’s essential to do your research and figure out which one would work best for your company.

If you already have one, don’t be afraid to make changes and experiment with different models. The key is to find a model that is profitable and sustainable.

7. No online marketing plan

You are way behind the competition if you do not take your business online. Nowadays, small businesses need an online presence to reach a wider audience. Not only that, but potential customers are more likely to buy from companies they can find online.

Creating and implementing an effective online marketing strategy is essential for small businesses’ success. This should include SEO, social media, and other digital marketing strategies. Without a plan, you will miss critical opportunities to reach new customers.

8. Failing to Diversify Your Income Streams

Relying on one source of income is a small business funding mistake. This is because if that income dries up, your business will suffer. It’s essential to have multiple sources of revenue so that you can weather any storms that come your way.

Diversifying your income streams will help keep your business afloat during tough times. This can be done in several ways, such as by offering different products or services, expanding into new markets, or finding new investors.

9. Reckless spending

When you have just received funding, you may want to realize all your business ideas, and spending it all at once may be tempting. However, this is a small business funding mistake. It’s essential to be mindful of your spending and create a budget for your business.

If you’re not careful with your spending, you could quickly run through the funding and jeopardize your business. Be smart about using the money and only spending it on essential items.

10. Not keeping a relationship with the investors

Funding mistakes

Many entrepreneurs disregard the fact that small business funding doesn’t stop after they have received the money. You must nurture your relationship with the investors and keep them updated on your progress.

If you’re not careful, you could lose their support, which could be detrimental to your business. Always keep the lines of communication open and let them know how your small business is doing.

The Bottomline

Seeking funding for your small business is vital in ensuring its success. Avoiding the common pitfalls mentioned above will put you in a much better position to get the financing you need. Keep these mistakes in mind as you navigate the small business funding landscape, and you’ll be well on your way to a bright future for your company.

Seeking funding? Work with us!

The Fully Funded Method ensures you get the capital you need without diluting too much equity and giving up business ownership. Contact us to learn more!



Selina Parker

“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”

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