7 Most Common Money Mistakes for Startups in China to Avoid

Smart financial management is essential for any business in China, no matter how big or small. However, it can be difficult to get things right, especially during the startup stage. Poor financial planning is one of the most common reasons that China startups fail, so the sooner you take ownership of your business’ financial health, the better. Dealing with your finances head-on from the get-go is the best way to set yourself up for lasting success. Careful planning can help you to avoid common money mistakes and shows potential investors that you are serious. Here are the most common financial mistakes that startups make and how to avoid them. 

1. Prioritizing Instinct Over Information
Whilst following your gut is generally a good principle, it is a dangerous game to make assumptions about your finances in China. It is vital that you meticulously track your revenue and expenses and closely monitor your cash flow. If a small mistake goes unnoticed for too long, it could prove very damaging for your China business. During the startup stage, using an Excel spreadsheet will suffice but be prepared to upgrade to bookkeeping software later on. 

2. DIY Accounting 
Managing your accounts by yourself will not suffice for the initial setup of your business as you need to abide by PRC GAAP regulations, so it is wise to hire a professional accountant as early as possible. Juggling self-taught accounting with running a small business in China and not understanding the Chinese accounting regulations will eventually result in a backlog of errors, which can prove costly. Professional accounting services save time, money, and stress, allowing you to focus on growth. You do not need to hire a whole team. Start by outsourcing your bookkeeping and taxes and setting up quarterly meetings with a financial consultant for help and advice to remain consistent and have keep momentum in the Chinese market.

3. Failing to Assign Project Budgets 
Assigning a budget to a project prevents it from draining your finances should something go wrong. A clear budget will allow you to reassess your finances should the project require more money and make smart decisions that will not damage your business. 

4. Disorganized Files
Extremely common in China! The importance of balancing bank statements and keeping fapiao’s (VAT invoices and receipts) in order cannot be overstated. Patchy bookkeeping can cause chaos for your business in China and result in a lot of trouble, not to mention wasted man hours trying to resolve the problem. Keeping all your fapiao’s and cross-referencing your accounts with your bank statements is VITAL for transparency and future success. 

5.  Misunderstanding Your Target Market 
In order for your business to be successful, you need to understand what your customers need. Knowing your target market helps you to reach them, as well as how to appropriately price your products and services. Here are some questions to consider:


 

  • What is your market position in China?

  • What need do you fulfil for your Chinese customers? 

  • How much value do your products or services provide to the Chinese market?

  • Who is your competition in China - and what makes you stand out from the locals and other foreigners in the market? 

 

Miscalculating prices can prove to be a grave error for a small business but knowing your market well will help you to figure things out.

6.  Hiring Quantity Over Quality 
Over-hiring is an expensive mistake to make. Hiring employees is one of the costliest parts of running a business, so going overboard is a huge waste of money. It can also damage staff morale, productivity, and lay-offs further down the line will only amplify the problem. 

Bad hires are another threat to a small business based in China. Hiring the wrong employee can create an imbalance within the company culture. In turn, this can negatively impact other staff and even damage your business’ reputation which is VITAL in China. Do not rush the hiring process. Taking extra care to avoid mistakes can save a lot of trouble in the long run.

7. Miscalculating Expenses
In order to keep your business afloat, you need to know exactly how much cash your business burns each month. Keeping a meticulous record of your expenses allows you to understand where your money is going, and how much you will need to survive. Underestimating your cash burn can land your business in hot water, so create a projection of your monthly expenditure and be sure to monitor it closely, adjusting whenever necessary. 

 

A successful business in China needs a strong financial foundation, so keep these mistakes in mind. No company in China is invincible, and it really does pay to be cautious and always stay one step ahead. 


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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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