Biggest financing mistakes by first-time entrepreneurs

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To use an American phrase - ‘Cash is the gas that keeps every entrepreneurial engine running'. When companies run out of cash from investors, lenders, or customers - they go out of business. It's that simple. This makes the person managing your finances a VIP. Many start-ups don't have qualified accountants on the payroll and although you probably use an accountant when it comes to filling in the dreaded tax returns you need to be aware of best practice in money matters so here are six mistakes to avoid.

1. Raising the wrong amount of money. When entrepreneurs don't raise enough money to complete product development, build out websites, or fund advertising campaigns, they just stand still or slide deeper into trouble. In contrast, entrepreneurs who set sensible fund-raising goals gain respect from cheque-writing investors. Entrepreneurs should calculate how much money it will take to reach ‘cash-flow break-even'. This is the point when monthly revenues consistently match or exceed expenses and the risk of business closure drops significantly.

2. Retirement accounts should not fund business start-ups. Your accountant can fill you in on the many reasons why not.

3. Soliciting the wrong investors. The secret to efficient fund-raising is soliciting investors whose investment preferences most closely match a company's geographic location, industry, and stage of growth.

4. Overestimating the company's value. Ambitious entrepreneurs all believe their ideas are worth millions. However, investors close their cheque-books whenever they are asked to buy a Ford at a Bentley price.

5. Assuming new investors will pay off old debt. Entrepreneurs often borrow money from friends and family members to get their companies off the ground. As their business prospers, entrepreneurs then turn to angel investors and venture funds for their next round of financing. Here's the conflict. Entrepreneurs want to use the money to pay off old debt; investors want the money to go to revenue-building product development, advertising, and sales. Who wins? The new investors!

6. Pushing for fast answers. Patient entrepreneurs who give investors plenty of time to learn about a company's plans for growth raise money faster than entrepreneurs who press investors for quick, ultimately negative decisions.

For more advice visit the Managing your Finances section on the Small business website, and if you haven't done so already, download Office Accounting Express 2008, free of charge, to help you manage your accounts more productively.