8 Business Funding Mistakes You Should Avoid at All Costs

So, you want to start your own business or a creative project, right? But let's face it, operating any business requires capital to get things going. And what if you don't have enough cash stashed away and your couch cushions are empty? What’s next?

If you need money to start your business, you'll need external funding. But here's the thing: lots of folks get it wrong when it comes to funding their ideas, and that can really harm your chances of success. So you've got to be careful and do your research before taking any action.

As a new creator, it's important to know what not to do. We've put together a list of common mistakes you should avoid to get started on the right foot.

It is essential to bear in mind that every method of funding comes with its own set of risks. However, this is the nature of any worthwhile endeavor. Obtaining funding for a project can be a daunting task that often requires a lot of work. To begin, you must determine the exact amount of money you need and evaluate your personal assets that are available.

If you need external funds, a few funding options include:

•  Using crowdfunding to support your business or project
•  Applying for small business loans
•  Taking loans from friends and family
•  Getting venture capital from investors (best for companies with high growth potential, but may not be suitable for most creative projects)

Key Funding Mistakes You Should Avoid

It is essential to be cautious during the funding process as enthusiasm and inexperience can lead to mistakes. These mistakes may harm the chances of funding and completing your project successfully. Therefore, it is crucial to keep in mind the 8 most significant business funding mistakes and try to avoid them.

1. Not setting a realistic funding goal

As much as every business owner would like billions of dollars in funding, that kind of cash flow isn't realistic in most cases. Setting a funding goal significantly higher than the funds you need for your project can backfire and become a costly mistake. If people see an overly high goal, they may question the legitimacy of your project and feel less inclined to contribute. 

Your funding goal should accurately reflect the amount of money you need for your project. Don't wildly overestimate the funds you need, but don't underestimate, either. 

The best approach is to estimate how much you need as accurately as possible and add a small bumper (5% to 10%) to that figure. This small amount over your estimated costs can act as an emergency fund if you have any unexpected expenses later. 

2. Misjudging production, manufacturing and fulfillment

Offering valuable, appealing rewards is a great way to draw in potential backers, but it can also lead to financial pitfalls if you misjudge the cost of providing those rewards. 

Before launching a project, it’s important to get quotes from production partners to accurately have an idea of the cost estimate for reward.

One of the most common small business mistakes is underestimating or misjudging the cost of shipping goods in your financial projections. Make sure you know exactly how much it will cost to provide the rewards you're offering and price your reward tiers accordingly. If you underestimate the cost of your rewards (including shipping), you will struggle in the post-production phase.

Also, consider receiving a sample or prototype of any physical rewards you’re offering. That way, you can check for defects and make sure the quality meets your standard before they reach your backers. 

3. Failing to communicate your idea clearly

When you launch a Kickstarter campaign, you're pitching to your audience that you have something valuable they should contribute to. The success of your campaign depends on your ability to communicate your vision and what you're offering to backers. A campaign isn't just about what you need—it's about communicating what you offer. 

Whose project would you rather contribute to—one with an exciting idea and clear business plan or one with murky details and a confusing vision? If you can't show people why they should contribute to your business idea or project, they probably won’t. Not articulating your idea well is one of the most common financial mistakes you can make while seeking funding. Think about your project from the audience's point of view and share your vision in a way that connects. 

4. Underestimating the value of rewards 

Crowdfunding allows you to raise the funding you need for your project by providing rewards that appeal to potential backers. You don't have to offer different tiers with increasingly appealing rewards, but you'd be wasting an opportunity to raise more funding. 

People are motivated when they get something in return. 83% of customers say belonging to loyalty and rewards programs affects their purchasing decisions going forward. That logic also extends to crowdfunding. Consider what rewards you can comfortably offer and what appeals most to your target audience. The right rewards can make all the difference for creators. 

5. Neglecting the importance of updates  

After you launch your fundraising campaign, you can't just sit back and wait for the campaign to end. You should stay in touch with the community and offer updates when anything changes. 

For example, when you hit 50% of your funding goal, you should post an update celebrating that accomplishment. Posting regular updates and communications will show potential backers you're engaged with the project.

You also need to post an update as soon as possible if you run out of any rewards or are close to another stretch goal within your campaign. Failing to do so can lead to frustrated or confused backers. 

6. Ignoring feedback and suggestions

Oftentimes, bringing an idea to life is a collaborative effort. You're in control of your project and funding requirements, but the crowdfunding community plays a key role, too. Don't ignore feedback and suggestions from your backers, especially if you're getting similar feedback from multiple users. This trend in feedback can point towards a genuine breakthrough. 

For example, if your audience tells you there aren't enough differences between your various reward tiers, consider making some adjustments. The more you can incorporate feedback and suggestions from your audience into your campaign, the greater your chances of success. 

7. Not leveraging organic marketing effectively

Social media is an incredible tool for spreading the word about your project. A strong social media campaign will create interest, drive people to your funding site, and help you hit your goals. 

Use hashtags and leverage trends to boost your chances of reaching new audiences. You can repurpose some of the content from your campaign page and publish it on social media, but create some fresh content, too. 

Don't just post about your project on your personal social media account. Create a separate account for your business or project and build an audience there. If you really want to supercharge your campaign, consider running paid ad campaigns on social media to promote your fundraising efforts for even more visibility.  

8. Lacking transparency on fund usage

Your pitch to potential backers needs to clearly outline how you plan to use the funds they're providing. Misleading the people offering funding, either intentionally or accidentally, can lead to huge problems and is another one of the worst creative funding mistakes. 

Share your plans for the funds you're raising, and be as transparent as possible. You don't need to get down to minute details, but you do need to make sure backers know where their money is going. Once you have the funds, we urge you to use them as you described in your campaign. 

Funding With Kickstarter

We'll leave you with a bonus tip: Avoid using the wrong platform to raise funds.

Take control of your business finances and get the funding you need on Kickstarter. With Kickstarter, you can raise funds, launch with confidence to an active community of supporters, and bring your creative project to life.