Deadly Sins

Deadly Sin #3

Insufficient capital.

Although determining the amount of capital you need is one of the more difficult issues for a start-up, this task becomes much easier once you have a business plan and a board of advisors. Besides, having enough capital is an absolute necessity if your business is to grow beyond the dream stage.

Capital requirements for the 3-, 6-, 12-, 24- and 60-month benchmarks should be determined well in advance, and you must be reasonably sure of your source of funds, whether it's private or public capital investors, personal funds or loans.

Also be aware of the other side of the same coin: excessive debt and overhead. Debt can destroy your start-up, so stick to your business plan, and don't let appetite exceed budget or planned expenditures. "Too many entrepreneurs bring the infrastructure 'bloat' from their previous corporate careers to their start-up," says Pierce Johnson, founder of Chicago-based Johnson Technologies Inc. (which he sold last year to eSkye Solutions). "Most of the failed companies I know added too many employees too soon."

Basic rule: Stick to the business plan, and if a particular expenditure isn't budgeted there, forget about it.

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This article was originally published in the August 2001 print edition of Entrepreneur with the headline: Deadly Sins.

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