The statistics on startup failures can be disheartening. Still, this does not mean you should not move forward with your great idea. Failure is not fatal.
What the statistics do say is that when you are just starting out, you must be strategic about everything. The challenge is that you are excited about your new product or service. You envision a global need, ready-made consumer base, and profits. However, to succeed in the early months or years, you must temper that excitement with reality-based operating procedures.
These top financial tips for entrepreneurs offer some guidance to help you succeed.
Creating and sticking to an operating budget is critical, especially when you are just starting out. With an industry-wide failure rate of 90%, you want to do everything possible to ensure that your startup is successful. The way to begin effectively is by being strategic about how you handle your money.
Before you launch your small business, create an operating budget. The only way to know if your budget is realistic is to be fastidious about monitoring every expense and income item. If you do not know where the money is going, you will have no idea how to create a future financial roadmap. You may find that a certain expenditure is wasteful, or that you can find the same item for less money elsewhere.
Cash Flow Is King
Revenue is not the same as cash flow. When you invoice your customer, for instance, this is revenue. Yet, the invoice has not yet been paid. Collecting the money owed is your cash flow.
Cash flow is the money that moves in and out of your business every month. When you have positive cash flow you can afford to pay employees, suppliers, rent or mortgages, taxes, and other recurring operating expenses. Negative cash flow means that you may need to delay a critical purchase that would help you expand in the marketplace. This could be a lost opportunity that may not present itself again.
Keep Overhead Low
Keeping your overhead costs to a minimum will help you maintain positive cash flow and increase profitability.
All costs outside those related specifically to producing a product are considered overhead. These include:
- Supplies and equipment
- Marketing costs.
The physical costs of operating a business can absorb a significant chunk of your budget. Can you launch your startup from home? The money you save on rent is cash you can invest in product development and marketing.
Be strategic about staffing up and equipment purchases when you are launching your small business. A business with many employees looks impressive, but for now you need to keep it to the minimum.
Define Realistic Goals And Milestones
Business goals are not your long-term vision. For instance, being the leading provider of custom-made furniture in your region is not a goal. This is your long-term vision. Goals keep you and your staff focused on the vision and mission. A goal might be to host four showcases per year that feature your newest furniture designs.
Milestones are numbers that indicate success in achieving your goal. For instance, continuing the above example, a milestone would be 1,000 new customers attending your quarterly showcases. A milestone can also be a date. For example, hosting the first quarterly custom-made furniture showcase on January 1, 2021.
Hope For The Best, Prepare For The Worst
Murphy’s Law “If anything can go wrong it will” has taken on a rather defeatist tone over the years, but it was not meant to be. Murphy encouraged his team to prepare for everything that could possibly go wrong and to create a response for each possibility.
As a new entrepreneur, you are filled with optimism. Still, there are many external factors that are out of your control. You have identified your strengths, weaknesses, opportunities, and threats. This prepares you to deal with the known. Yet, there is the unknown—”the worst”. Imagine that after months spent developing a novel software platform, a global recession hits and your potential customer holds off on new purchases. How are you going to cover the costs?
When you are launching your new business, you have many responsibilities, chief among them keeping your startup financially viable. Employing these top financial tips for entrepreneurs just starting out will help you build a solid foundation upon which you can take your dream from launch to industry leader.