It is said that more than 60% of new businesses fail within 2 years of operation. Majority of these businesses fail because they run into financial trouble – they cannot generate sufficient cash flow to keep with the expenses, they have not saved enough to survive the first year when revenue are still being generated or they simply go on a spending binge and run out of cash in a short time. While you can always seek investors or business loans to get funding in the initial stage of your business, those who have done it will tell you that it is not as easy as it sounds. Successful entrepreneurs and business owners know that having a financial savvy, especially for new business owners, is one of the most important requirements to succeed at business. So, here are the 3 most important tips to keep in mind as you are working on building the next Starbucks or Google.
Put Away Savings for Personal Expenses
As the saying goes, it takes money to make money. Even if you anticipate taking out a small business loan and financing your way through the beginning stages, do yourself a favor and build up a nest egg before you jump into business. All too often people lean exclusively on financial assistance from outside investors, friends and loan options, and don’t feel the need to invest their own money up front.
Realistically speaking, it could take years before you start turning a profit. If that’s what happens to your enterprise in the beginning and you don’t have a backup plan it could send lenders and investors for the hills. When your lenders start to question the profitability of your business model, you’ll be in for a world of hurt. At that point you could have no choice but to throw in the towel, go all in by taking out a second or third mortgage on your home or rely on credit cards to make things meet.
If you plan for this cash crunch ahead of time by saving enough to fund your personal expenses for the first year or two you’ll be in good shape. Stockpile as much as possible before you even open your doors for business.
Start Small (But Dream Big)
There’s something to be said about jumping in feet first and taking on the challenges as they come. As tempting as it sounds resist the urge to bite off more than you can chew. Don’t sign a five-year lease for an office space while you’re capable of working out of your basement. Don’t hire people you can’t pay. Even better, don’t hire people until you can keep them busy for an extended period of time. Independent contractors can get the job done equally well. They will be there when you need them and you’re not obligated to keep them busy and provide benefits.
Always keep your goals in the forefront of your decision-making process. It’s imperative that you start small but dream big.
Remember Your Roots
As the building blocks of your business begin to take shape and you start to see where you’re headed don’t forget the people who helped you get where you are. When it comes time to start taking on more full-time employees remember those freelancers who helped you in your company’s infancy stage. They are the ones who understand your mission and will be proud to be part of your growing organization.
A look at the WSJ profile of Gary Crittenden shows an extremely successful man who has not forgotten his roots. Born and raised in Utah, the Salt Lake City resident has risen to the top ranks of some of the most influential corporations in the world. He served as CFO for Sears and Roebuck Co., Monsanto Company, Citi Group, and American Express. He now serves as CEO of Huntsman Gay Global Capital out of Salt Lake City.
As your startup slowly sheds that title and becomes a thriving business or even a corporation you’ll find that these three financial principles are the driving force behind that success.
Excellent advice, especially the part about putting away savings for expenses. When we started this business 20 years ago, neither myself or my husband paid ourselves for the first year choosing, instead, to be a bit creative when it comes to expenses associated with our business.
The fact remains that when you’re starting a new business, it’s important to put any profits you may make back into the business so as to maximize your chances of sustained growth rather than believe the hype that all business owners are rolling in money.
Agree with you completely. You did the right thing by putting money back into business.