Mistakes made by entrepreneurs and consequences

When starting any business, entrepreneurs need to take into account realistic pro-forma financial statements that are vital to the business in evaluating their performance. and financial statementschange as it continues to expand. Despite the vitality of pro-forma financial statements, most entrepreneurs make critical mistakes when developing them, leading to poor performance of their businesses.

When starting a business,entrepreneurs to conduct enough research on the field that they are willing to venture. They may choose to approach people who have been into the business before, attend industry trade shows, or visit the business and estimate the level of purchases made by the customers. This helps in making informed assumptions. However, most entrepreneurs fail to make enough research and only decide to start a business based on their knowledge, perceiving that they know enough. They place their business at above- performance levels. They view their business attaining about 3% of revenues as a very easy task (Bygrave & Zacharakis, 2010). Once the business is started, reality dawns on them that it does not just happen. If these overestimations and superficial research are not avoided, the entrepreneur views his business underperforming and loses morale in continuing with the business. Such businesses are bound to fail after a very short period.

confidence in the entrepreneur (Bygrave & Zacharakis, 2010). The entrepreneur fails to prove to the investors that his business will return ten times their initial investment. The

Most entrepreneurs also fail to include break-even analysis when developing their pro-forma financial statements. They tend to assume that financing of the business will close quickly, and they start generating profits. They overlook the reality which has it that a business takes at least six months to close a round of financing (Bygrave & Zacharakis, 2010). To have a well-established business, entrepreneurs need to know the quantity that they need to sell in order to get to zero, in order to maintain a positive cash- flow.Failure to include break-even analysis by being too optimistic leads the business to having a negative cash-flow, meaning the entrepreneur can not be maintained in the business. It leads to ultimate closure of the business.

Some entrepreneurs fail to finance rapid growth in their businesses, making their customers became annoyed when the business fails to meet their expectations end up losing most of their customers. Others fail to show the equipment or land that they buy as a capital expense (Bygrave & Zacharakis, 2010). They should include depreciation in their income statements. Failure to do this makes the business show a false cash flow, which could make it have more expenses and finally operate in a negative.

In conclusion, it is important for entrepreneurs to avoid these mistakes among others. Accurate development of pro-forma financial accurate will help them achieve their dreams in developing successful businesses.

Reference

Bygrave, W., & Zacharakis, A. (2010). Entrepreneurship, 2nd Edition. Hoboken, NJ: John Willey & Sons.

 


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