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Avoid the Cash-Flow Crisis: Why 70% of New Businesses Fail

  //business-finance.news-articles.net/content/202 .. h-flow-crisis-why-70-of-new-businesses-fail.html
  Published in Business and Finance on Wednesday, December 3rd 2025 at 19:47 GMT by MiBolsilloColombia

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Financial Missteps That Can Sink a New Business—and How to Dodge Them

Starting a business is an exciting gamble, but it’s also a financial minefield. In a recent MSN Money piece, “Financial Mistakes When Starting a Business and How to Ensure Success,” the author lays out the most common monetary pitfalls entrepreneurs face and offers a step‑by‑step playbook for avoiding them. The article is a treasure trove for anyone looking to launch a venture without draining the bank account or, worse, blowing the whole thing up. Below is a comprehensive summary of the key points, enriched with practical take‑aways and cross‑referenced guidance from linked resources.

1. Ignoring the Cash‑Flow Reality

The biggest killer for startups is poor cash‑flow management. The article cites a 2019 survey from the Small Business Administration (SBA) that shows roughly 70% of new businesses close within the first year because of cash‑flow issues. The crux? Entrepreneurs often underestimate how long it takes for sales to translate into actual cash.

Mitigation:
- Build a cash‑flow forecast that projects monthly inflows and outflows for at least 12 months.
- Keep a cash‑reserve buffer—ideally 3–6 months of operating expenses.
- Use accounting software like QuickBooks or Xero to get real‑time visibility on receivables and payables.

2. Mixing Personal and Business Finances

One of the most frequent mistakes is putting business and personal funds in the same bank account. The article points out that this practice not only muddles bookkeeping but can also jeopardize legal protections, especially for LLCs and corporations.

Mitigation:
- Open a dedicated business checking account from the moment you file your paperwork.
- Issue a business credit card for everyday expenses.
- Keep separate credit files—this protects your personal credit score and helps maintain liability shielding.

3. Over‑Optimistic Revenue Projections

Startup founders often paint a rosy picture of future sales to attract investors or lenders, but when the revenue falls short, the gap can be fatal. The article stresses that the most common mistake is assuming every sale will happen immediately, ignoring sales cycles, lead‑generation hurdles, or market saturation.

Mitigation:
- Ground revenue assumptions in market research; use data from industry reports or your own pilot tests.
- Adopt a “tiered” forecasting model that accounts for best‑case, expected, and worst‑case scenarios.
- Track actual vs. projected numbers monthly and adjust assumptions promptly.

4. Forgetting About Taxes

New entrepreneurs often underestimate their tax obligations—both quarterly and annual. The article explains how failing to set aside the proper amounts can lead to penalties, interest, or even an audit.

Mitigation:
- Calculate your estimated tax payments (federal, state, and local) and set up a separate savings account or a recurring transfer to cover them.
- Engage a CPA or tax specialist early on, especially if you’re navigating sales tax collection, payroll taxes, or self‑employment tax.
- Leverage available tax deductions: home‑office expenses, startup costs, equipment depreciation, and R&D credits.

5. Under‑Estimating Startup Costs

Entrepreneurs sometimes view startup costs as a one‑off line item, forgetting the ongoing expenses that will surface over time. The article outlines the usual missteps: neglecting maintenance, ignoring marketing, or underpricing staff costs.

Mitigation:
- Create a detailed line‑item budget that covers fixed and variable costs, including software subscriptions, insurance, rent, utilities, marketing, and salaries.
- Plan for hidden costs: legal fees, accounting services, and potential regulatory compliance.
- Review the budget quarterly to spot overspending or unforeseen expenses.

6. Skipping a Formal Business Plan

While a narrative story can be persuasive, the article notes that many startups skip the formal financial projections that accompany a business plan. Investors and lenders alike want to see cash‑flow statements, income statements, and balance sheets.

Mitigation:
- Follow the SBA’s “How to Write a Business Plan” guide (linked in the article) to ensure you include: executive summary, market analysis, organization structure, product line, marketing strategy, funding request, and financial projections.
- Use templates or software like LivePlan or Enloop for structured modeling.

7. Over‑Reaching With Debt

Taking on too much debt early—especially unsecured loans or credit card debt—can cripple a new business. The article highlights that about 30% of startups fail due to unsustainable debt loads.

Mitigation:
- Limit debt to what you can realistically repay within the first 12–18 months.
- Prioritize low‑interest, secured loans over high‑interest credit lines.
- Set clear repayment schedules and monitor debt-to-equity ratios.

8. Not Accounting for Insurance

Insurance isn’t just a bureaucratic formality; it’s a financial safeguard. The article points out that many small businesses under‑insured, exposing themselves to catastrophic liabilities—property damage, liability claims, or even cyber‑attacks.

Mitigation:
- Identify coverage needs: general liability, commercial property, workers’ compensation, professional liability, and cyber‑security.
- Get quotes from multiple insurers and consider bundling policies for discounts.
- Review coverage annually to match business growth.

9. Ignoring Professional Advice

The temptation to DIY every aspect of financial management can lead to costly errors. The article stresses the value of early and ongoing consultation with a Certified Public Accountant (CPA), business attorney, or a financial advisor.

Mitigation:
- Engage a CPA during the incorporation stage to set up bookkeeping practices and tax structures.
- Hire a business attorney for contracts, incorporation documents, and IP filings.
- Schedule quarterly strategy meetings with advisors to keep financial practices on track.

10. Failing to Plan for Growth

Finally, the article cautions that some startups grow too fast, stretching resources beyond their limits, while others grow too slowly, missing market opportunities. The key is a balanced, data‑driven growth strategy.

Mitigation:
- Set milestone‑based funding: raise capital only when specific performance metrics are met.
- Invest in scalable infrastructure (cloud services, modular inventory systems).
- Leverage performance dashboards that compare actual progress against projections.

Putting It All Together: A Blueprint for Success

To translate these insights into practice, the article recommends a three‑step framework:

1. Plan – Draft a realistic financial plan, including a detailed budget and cash‑flow forecast.
2. Execute – Use accounting tools, keep finances segregated, and adhere to tax and insurance obligations.
3. Review – Conduct monthly financial reviews, adjust assumptions, and seek professional guidance as needed.

By weaving these steps into the daily fabric of a new venture, entrepreneurs can reduce the risk of costly mistakes and set the stage for sustainable growth.

Takeaway

Starting a business isn’t just about a great idea; it’s about disciplined financial stewardship. The article from MSN Money underscores that the most common reasons for startup failure are preventable—primarily mismanaging cash flow, blending personal and business finances, over‑optimistic revenue forecasts, neglecting taxes, under‑estimating costs, skipping formal planning, over‑reaching with debt, ignoring insurance, and not seeking expert help. Armed with the tools, templates, and guidance referenced throughout the piece, a founder can avoid these pitfalls, maintain a clear financial runway, and position the business for long‑term success.