Entrepreneurship can lead to significant financial opportunities, but it also presents a significant number of risks as well. That’s why it’s so important to understand exactly what you’re getting into before you dive into starting a business so you can protect your finances.

The risks associated with entrepreneurship come from a general lack of knowledge on business and finance, which are generally not taught in most public schools today. Unfortunately, even in the districts where they are taught, the curriculum is typically very surface level.

So this lack of knowledge, coupled with unrealistic expectations developed by consuming a steady stream of highlight reels on social media today puts budding entrepreneurs in a proverbial minefield.

Many—especailly younger generations, believe that the market will love whatever they offer, they can build a six-figure business within their first month, and they’ll suddenly have access to unlimited funding just because they filled the paperwork for an LLC.

While unrealistic enthusiasm can be a tremendous advantage in starting a business, your decisions have to be based on reality, and that requires knowledge of how business works in the real world.

So in this article, I’m going to address some of the common mistakes smart people make when they start a business. These mistakes can often be financially devastating, so it’s critical to know what they are and how to avoid them.

Cash flow is the foundation of a successful business

Everyone always gets excited about landing an especially big deal, especially when your business is relatively new, but many get so focused on closing the big deals that they overlook the smaller deals that make up the majority of their revenue.

Now, I’ll also be the first to tell you that sometimes, a situation like this can still be a good opportunity because it can lead to future work that is more profitable, as well as creating authority status and valuable relationships that can open new doors. But you always have to remember that in order to stay in business, you need to generate consistent cashflow, and there has to be enough profit in what you’re doing to make it worthwhile. But that cashflow is critical—even if it’s not profitable because it keeps your business running and it can also play a role in business funding. (We’ll talk more about that a bit later.)

This is where truly understanding your numbers becomes a superpower, because when you know exactly where your revenue is coming from and where it has to go, you also know exactly when and where you can make exceptions. Maybe you generally need a 30% profit margin to cover the expenses that come with running your business, and you know you have your current costs covered, so when you come across the opportunity to bring on a client that puts you at a higher status but you have to lower your price to break even just to close it, you can run the numbers to see if you can afford to float this no-margin project. That injection of revenue may not be as profitable, but it provides needed capital for operations and looks good to bankers when it comes time to borrow.

You need to secure funding long before you plan to use it

In my earlier businesses, I tried to bootstrap everything because I had a scarcity mindset. I genuinely believed that any revenue that I spent for the business meant less income for me. That was especially important to me because I was the one who was at the shop well before sunrise and often stayed until 10PM or later, and I didn't get to take any income until after the expenses, which includes employee salaries, were paid.

As a result, there were times when I was the lowest paid employee in my own company. So at that time, the idea of seeking business capital seemed ludicrous. After all, how does it make sense to borrow money when I would just have to pay it back with interest, leaving even less for my own income.

It wasn’t until I sold that company and moved into my current role that I realized that was a financially limiting belief. While I agree with a lot of what Dave Ramsey says, I have to disagree with his views on debt when it comes to business, because when used properly, it can create tremendous opportunities you would otherwise have to pass on.

The key is in how you use that debt. I’ve been following Dr. David Phelps’s column for a while, and the advice he gives on this is solid. If you’re not familiar with Phelps, he’s a noted financial expert who recently helped the Florida Department of Education develop its financial literacy curriculum.

He’s also a financial columnist here at Newsmax and has written several articles, including this one, on exactly this subject. I asked when he believed a business owner should use credit, and his response was succinct and simple; “In today’s economy, you should use credit only where a positive ROI is essentially guaranteed.

A few scenarios that fit that criteria could include: to purchase materials for an order that’s already been placed, to rehab a building that is significantly undervalued based on comps, or to scale up an already proven marketing campaign. Right now, the entire world is on rocky footing, financially speaking, so this is the time to act cautiously and defensively and remember that speculative investments during a time like this can be especially devastating.”

Aside from simply not seeking credit for their business in the first place, the other mistake I often see entrepreneurs make is waiting too long to seek it.

Amanda Webster, COO of the business funding firm Fund&Grow, shared her insight, saying, “Business credit works very differently than personal credit so most people approach it the wrong way. For example, while it’s often easier and faster to increase the credit limit available to your business compared to your personal credit, it can be more difficult and take longer to get it in the first place.

So it’s always smart to start seeking business credit long before you actually need it, and then consistently work towards improving your credit profile in the right ways to get access to more credit. This will put you in a better position to capitalize on opportunities without getting stretched too thin.”

I personally have missed out on opportunities in the past, either because I avoided debt entirely, or because I didn’t seek it early enough in the process. That’s a mistake I will never make again, and to avoid it, I am always working to improve my business credit profile so I have access to the capital I may need at any given time.

Marketing must be treated as a recurring investment

In one of my previous business ventures, a large printing company, I did very little marketing because I incorrectly viewed it as a luxury. “That’s just something those giant companies can afford to do, so I’ll just stick to these little networking groups instead,” I thought.

And while my company did well, eventually generating over $1 million in revenue per year at its peak, I now realize that it could have been so much more had I consistently invested in marketing like I have in the company I run today.

Shortly after selling my printing company over a decade ago, I was recruited to be the Director of Sales and Marketing of a national workplace drug testing company, where we served a broad clientele including small businesses, Fortune 50 giants, the Department of Defense, and major sports organizations to name just a few.

I was joining a company operating at a much larger scale, and our offices across the country needed a steady flow of leads so they could sell our services. At this point, I had no choice but to dive in head first and treat marketing as an investment, which included bringing in the appropriate professional advisors, because there was no way to scale my old approaches.

Instead, we leaned in heavily with SEO, email marketing, and public relations. We stuck with it until we got the results we were looking for, and then continually refined our campaigns to further improve results. As we got better at this, the results started to compound exponentially, and we began to grow by leaps and bounds.

In taking this approach, we quickly grew from a relatively small company into an industry dominating powerhouse in a few years and I was even elected to the board of directors at the top trade organization in the industry.

And in looking back at our books over time, I learned that while we had periods of time where our budget fluctuated up and down and even included a few lulls of near inactivity, the periods where we were most consistent, we generated the highest return on investment, or ROI. In other words, instead of saving money when we cut our marketing budget, we actually lost money.

This consistency is something that most companies fail to achieve, so by committing to it, you will build a more financially successful business, and get exponentially more out of your marketing investment.

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David Bell is a serial entrepreneur, and is currently the CEO of the national workplace drug testing company, USAMDT, where they help employers create a safer and more productive work environment.