Starting a business can be a fulfilling experience but also a challenging one. According to a study by Forbes, almost 80% of startups fail within the first six months of operation. Although the causes of failure are numerous, under capitalization is the leading cause. After starting a business, it takes time to produce the product, distribute, market and sell the product in order to realize cash flow. This implies that it takes time, sometimes a few months, at times even a year before cash flow starts streaming in. For an entrepreneur to succeed, financial planning is key in order to ensure that you have enough money to run the operations until you realize sales revenue.
How to raise this money is another challenge. Sources of capital ca be in form of savings, partnerships, equity financing or offering some percentage ownership in exchange for capital and loans. The worst mistake any entrepreneur can make is to starting a business with a loan. When one of the most successful entrepreneurs Mark Cuban mentioned that “only morons start a business with a loan”, he had a million reasons to support it. Here are the top reasons why starting a business with a loan increases your chances of failure.