Biggest Mistake to Avoid When Starting a Business (IMO)

By my estimation the number one misstep people make when starting a business or venture is unrealistic financial projections.

To be fair, none of us has a crystal ball and anything anyone forecasts is some type of guess on a gradient scale from uneducated to educated. So, when I say that some people produce unrealistic financial projections that’s not to admonish them for failing to get it right. What I want to do is highlight how important it is to be well researched, thoughtful, and thorough as you plan every aspect of your venture, especially the money aspect.

Overestimating revenue is common. As is applying overly ambitious hypotheticals for customer acquisition, market penetration and even the size of the market (which leads to overestimating revenue). 

Another common oversight is underestimating costs, including the impact of taxes and interest (if you plan to use leverage), and planning only for the least expensive everything.

Here are a few tips for working through financial projections.

 1.        Be careful with your benchmarks.

 When you have no internal sales or revenue data to extrapolate, using comps is a widely accepted option. But, when your company is new there isn’t much true comp data available, since what you’ll mostly find is information from larger public companies. So, you may need to edit and adapt your outside inputs to fit your company and your business model.

 2.        Be conservative.

 Believing that you’ll make the most money possible in as little time as possible for as little cost as possible is…. understandable. Personally, I’m all about “being delusional” (if that’s still a trend) – as long as I differentiate my delusion from reality. So, I allow myself to feel the feeling of making all the money and getting all the deals; but I plan for the worst cases so that I can prepare accordingly. 

 3.        Research.

 Understanding everything you can about your product/service, your customer, the market, the broader industry, your closest competitors, and on and on and on can help you make sturdier decisions.

This isn’t an exhaustive list. I’ve just mentioned the areas I believe might have the most impact. This is also where I find the most opportunities to reevaluate. And remember, your business plan is a living document and the components of your plan can and should be updated as needed. Your financial projections aren’t a one and done. It might be helpful to come up with a review cadence to regularly monitor and reset your projections based on actuals and changing conditions.