Expenses that can Drive Startups to Bankruptcy

Expenses that can Drive Startups to Bankruptcy

Cash flow is considered to be the lifeblood of a business. No matter how profitable a business, if it is running low on liquidity, it will have cash flow problems that may drive it into the ground. Thus, preliminary cash flow planning is vital before the launch to ensure that the startup is prepared to weather any storm. Having an estimate of the future expenses indicates the finance needed for the startup to be stable. Given below are some expenses that may hinder the cash flow of a startup.


Every entrepreneur is aware of the fact that they will have to pay taxes, whether the business is generating a profit or not. The amount of taxes may vary based on the profitability of the business, nonetheless, they will need to be minimized as much as possible. In order to implement tax strategies to help lower your expenses, you will need to employ a reliable and qualified accountant. This will allow you to be aware of loopholes for tax deductions that will lead to reduction in your taxes. Hence, the lesser the tax, the more profit leftover that can be ploughed back into the business.

Interest Payments and Crowd Funding

Kick starting a business requires finance which most startups obtain from the bank. Though this may be a quick and easy way to improve liquidity, interest payments have to be paid, whether the business is reeling in profits or not. Interest rates may vary based on several factors such as, the financial position of the business, the security that they can provide and the size of the business. Entrepreneurs are thus, advised to carefully assess their assets and go through the fine print before they agree to take out the loan.

Nowadays, business managers see crowd funding as a way to escape taking a loan with such difficult terms. Crowd funding websites allow startups to generate cash through joint funds which have comparatively flexible terms that suit their needs.

Legal Fees

Setting up a business is no walk in the park. There are a lot of legal issues that need to be dealt with, forms to be filled out just to establish the name of the business. However, employing a lawyer means that an entrepreneur does not have to deal with legal requirements on his own. Of course, lawyers have to be paid as well. In such cases, you are advised to do most of the legwork yourself, bringing in a lawyer only for consultation purposes. Forms and documents are easily available online. Should there be any difficulty while filling these out, the internet offers a wide array of information that can assist you in making this process easier. A lawyer can then be consulted to ensure that everything is in order.

Other Expenses

Often businesses forget to factor in shrinkage when they begin planning their launch. Expenses that are a result of errors or any mishaps need to be prevented to minimize losses. Using sound security systems and frequent auditing can help determine the root of shrinkage, should it arise, and allow the business to correct the problem.

By preparing themselves against such expenses, that entrepreneurs may otherwise ignore, a startup can survive long enough to not only celebrate its 10th Anniversary, but more.

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