How to lay the foundation for a sustainable business.
I’m not a legal or financial professional . . . I’ve just started and bootstrapped a lot of businesses. Building a company from the ground up is one of the most difficult things I have done.
If you are thinking of launching a startup, my hat goes off to you because it’s far from easy. Here are eight tips to help you avoid some of the common financial mistakes entrepreneurs make when starting a new business.
1. Cash flow management is key.
Most startups fail for a variety of reasons, but one is far more common than others — running out of money. You need to know where every single dollar is coming from and where every single dollar is going.
2. Track and monitor all spending.
With a new startup, there are going to be expenses coming at you from every direction. Hiring a full-time staffer to handle the books, in the beginning, isn’t very budget-friendly, so use accounting software to remain organized.
Not only will this help with cash flow management, but it also makes it much easier when tax time rolls around every year. As you grow and the accounting becomes more complex, you will need to consider hiring a professional.
3. Limit your fixed expenses in the beginning.
In the beginning stages of a startup, keeping your expenses low is the key to longevity. You don’t need a huge elaborate office in the heart of your city or fully catered meals three times a day.
Operate thin so you can allocate the majority of your capital to growth, which will enable you to one day implement any perk you want. Too many startups focus on the wrong things — like fancy offices and over-the-top amenities — and forget that generating revenue should be their top priority.
4. Remain optimistic but prepare for the worst.
You never know what can happen when starting a business, so it is best to prepare yourself for the worst possible situation. Don’t quit your job and eliminate your main source of income until your business can replace that income.
Keep reserves — both personal and business — in an emergency savings account. You can never be too prepared for bad situations. Sadly, they do happen, often when you least expect them. As an entrepreneur, you are responsible for your retirement, so when you start making money consider things like a Roth IRA and some investments, even small ones. Anything is better than nothing — consider micro-investing opportunities or allocating funds on a monthly basis to an online platform like E*TRADE. I found their fees to be on the low side.
5. Every minute of your time has monetary value.
I’m going to keep this short and sweet: time is money.
Nothing has more monetary value than your time. You only get so much of it every day, so take that into consideration when you are planning your schedule and day-to-day duties. Every second you spend doing something unrelated to your business is time (and money) wasted.
6. Focus on customer acquisition.
Without customers, you have no business. The sooner you figure out how to acquire customers and scale, the greater the chances are of your company making it. Once you identify different acquisition channels, work on optimization to lower your costs.
It’s impossible to test every possible acquisition channel at first, both in terms of time required and cost, so focus on the most lucrative opportunities. Once you successfully scale those, you’ll have the financial capability to explore other channels.
7. Make sure you pay yourself.
Your hard work and dedication to your business alone isn’t going to put food on your table — you need to pay yourself. While you don’t need to compensate yourself with a big fat salary in the beginning, make sure you pay yourself enough to live.
Give yourself enough to live comfortably and focus on building your business. When you eliminate personal financial stress, it allows you to stay ultra-focused on your business. You can’t eat ramen noodles forever. Give yourself some padding and comfort.
8. Establish financial goals.
Rather than just say, “I want to build a multi-million dollar company,” you need to break financial goals down into reachable and measurable ones.
Monthly, weekly or even daily revenue goals allow you to stay on track and make the adjustments necessary for constant growth. You can even set milestones to hit along the way, giving you a lot of smaller goals to constantly hit. Knocking out little goals can give you the confidence needed to keep powering through the entrepreneurial journey.
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