5 Financial Tips For Start-Up Entrepreneurs
Free enterprise is amazing. The ability to formulate a business idea, create a business model, develop a product/service, market the product/service, close deals, and make money—that is the entrepreneur’s dream! The current economic climate in the United States is poor, but this type of environment can often be the best for launching a new company. The reason is simple. Recessions force established companies to cut back on expenses and reign in company spending. This decreased spending makes it very hard for established companies to adapt and change during a recession, and oftentimes severe recessions force companies to change everything from products to marketing to sales. This makes it much easier for a new company to enter the market. A common metaphor is comparing a new company to a fast, agile ship on a wide open sea. Large ships have a hard time changing course and maneuvering.
Money, Money, Money
The most common cause of business failure is a lack of capital. If you are just starting out your entrepreneurial venture, take this truth to heart. If you build your business plan around this concept, your chances of success will increase significantly. If you have bad credit, you can apply for a business loans for bad credit. Here are a few tips to consider when making financial decisions in the ramp-up phase of your operation.
First, you must understand that if you have a vision for a product/service, there is real power in that vision. And that power can tempt you into thinking that you are going to make tons of cash right out the gate. I like to call this the throes of entrepreneurial passion. If you are not careful, you can easily conceive an illegitimate child in the throes of this passion!! Therefore, be conscious of this. Let the energy and power of your idea invigorate you and drive you every day, but don’t let it cause you to make unwise financial decisions.
Forgo Office Space
Now, this will depend entirely on your type of business, but if it is possible, do not sign a lease or secure office space until you have launched the new company and are making money. One of the quickest killers of momentum in the early stages of a company is a lack of cash, and office space is generally one of the largest overhead expenses each month. If possible, delay it.
If you do acquire a space, or even if you operate out of your home, do not spend money on lavish furnishings. You may think you need to in order to create a certain type of “feel,” but the truth is that you do not. Remember, Microsoft and Apple were both started in a garage. Don’t use business loans for bad credit to buy things you do not absolutely need.
You will need help, but try to hold off taking on employees until huge sales requires more administrative help. Sure, it may be nice to have a secretary that gets your coffee and newspaper every morning, but it’s not worth killing your cash flow to make it happen.
Do not bury yourself in a hole by building up inventory before you make any sales. If at all possible, do the opposite. Try to secure as many pre-sales as possible. This will not only help you gain essential momentum in the early stages of ramp-up, but it will significantly reduce the cost of inventory.
Review and Analyze
Look at your financials on a consistent basis. Take a seriously look and conduct in-depth analysis in order to determine where you can cut back. If you commit to rigorously keeping costs down, then you will be positioning yourself to not only survive the inevitable challenges of the ramp-up and launch phase, but you will also be instituting good habits and principles that will help guide your decisions when cash does begin to flow strongly.
This was a guest post by Michael T.