When starting a small business, one of your primary concerns is money: how much you are bringing in, how much you are spending, whatyou are spending iton, how are your revenue growing, howprofits can beincreased, so on and so forth. Your financial stability and cash flow are the lifeblood of your growing organization and knowing how to manage it well can mean the difference between consistent and long-term growth and stalling out after a few short months or years.
Perhaps the hardest financial practice for small business startups is swallowing the fact that it’s going to take a lot to try and compete against larger companies. Everything about your firm from your model to your products may be better than those major corporations, but simple cash flow puts you miles away from them. To help shorten this gap and get your business on the right trajectory for success, here are 7 of the best financial practices for startup companies to save, profit and grow.
7 Best Financial Practices For Small Business Startups
1. Plan, Plan, Plan
The idea of planning seems obvious, but you’d be surprised how many business owners come running out of the gate, excited for their new company, and quickly realize they went too far, too quick or in the wrong direction.
Calculate every step you take, not only from a financial and budgeting standpoint but also from a goal-oriented one. Having clear objectives each week, month and even year will keep you focused and prevent you from spending on activities that don’t pertain to these aims. You’ll spend less and spend smarter.
2. Don’t Expand Beyond Your Means
You want your business to grow, and you want it to do so quickly; every business owner does.
From a small business perspective, it is especially alluring to expand quickly and make a serious push towards competing with the ‘big guys.’ But, a lot of startups that develop too rapidly find themselves over their heads. They don’t always account for the infrastructure and resources (not only money but also staffing, technology, time and other tools) that are required to handle such growth. Thus, they can’t adequately sustain or manage such an expansion and often need to scale back or scramble to put together the necessary resources to handle it. In either case, it is going to hurt your business financially.
3. Know When to Ask for HelpHelp comes in a lot of different forms. For some people, it’s easy to ask for, but a lot of times and for a lot of independent people, it is one of the hardest things to do. Asking a friend or family member to borrow some money during a particularly rough period or seeking out a cash advance or small business loan through a lender is certainly elicits some uncomfortable feelings.
But keep in mind, when you ask for help too late, it is damaging to your business, but also puts pressure on whomever in your family or circle of friends you’ve asked to borrow from to make a decision quick. If you decide to take advantage of a cash advance or small business loan, the longer you wait, the less time you have to shop around for the best option. Thus, you could rush your choice and end up with a less-than-great lending program or even struggle to get approved for a loan in time to make a difference.
4. Ask For Discounts
This practice is very similar to the above, but, instead of calling for a lot of immediate help, this strategy involves consistently asking for a little bit of aid. People like to see small businesses succeed, even when they aren’t their own. No matter what the focus of your business is, you have costs and these costs come from a variety of sources: suppliers, vendors, distributors, etc.
While these expenses may seem fixed, renegotiating them is always an option. By talking with your cost-related associates or partners, you may be able to talk them into a unique pricing option that better suits your small business needs and budget. It isn’t always going to work, but when it comes to a startup company that is trying to minimize costs and maximize profits, a little bit can go a long way.
5. Don’t Quit Your Job, Not Yet
One of the biggest financial missteps that a new small business owner makes is going ”all in” too soon and leaving their current job. Again, it is common for a startup owner to want to devote all of their time, money and resources into their company right away. This often means quitting their job to free up a lot of their time. But, putting all your time and energy into your startup isn’t always the smart bet.
Working 80-hours a week for your own business may seem like you are living your dream, but it skews your profit margins and simply isn’t sustainable. Just because you are benefiting from 80-hour weeks, doesn’t mean your earnings will continue when you begin to burn out and have to scale your workload back. Balancing your small business with an existing job can help ensure you don’t exert too much into your new venture. Plus, it is a good way to help fund your startup.
6. Recognize and Plan for Seasonal Cash Flows
Any business owner knows that profits aren’t stagnant; sometimes they are down, and other times they are up. Being able to anticipate these peaks and valleys allows you to plan and budget better. For example, if you know business (and thereby profits) slow between the months of March and May, then you can prepare for this downturn and ensure you have the financial stability to outlast the slow periods.
Handling downtime and the slow times is more difficult for a startup company than it is for an established business. There isn’t prior history for you to look at and determine when these slow or busy times will be; therefore, you need to make sure you chart your activity from the beginning so that you have the necessary tools to plan in the future.
7. Watch Your Burn Rate
The idea of burn rate goes back to the idea of trying to protect yourself from going too far, too fast. Your burn rate is how much you are spending, against your incoming revenue. If your burn rate is too high, then you are essentially hemorrhaging money. In these instances, it is time to slow spending, so that cut back how much you are putting into your small business. The burn rate for small business is high, and you do not want to become another statistic. If that means slowing down and gathers some funds, it’s wise to do so. It’s better than digging an enormous financial hole.
When you spend beyond your means, you put yourself in jeopardy. What happens when you have burned through your finances, but run into a tax penalty or regulation fine? If you don’t have the reserves or savings to pay it, your situation goes from bad to worse in moments and sends you into panic mode. Always keep some reserves in the coffers, just in case.
In their earliest stages, small business startups are fragile. Often what makes the difference between a successful startup that ultimately blooms into a still-growing business and one that flops quickly out of the gate is how frugal their owners are. It easy to want to go a hundred mile per hour. After all, many of us dream of owning our own small business, so to see that dream come to fruition is incredibly exciting. This high paced excitement is necessary to get the wheels moving and push you through the early stages of your business, but it can also be a detriment if you let it get ahead of you. Without proper planning, sound financial practices, and careful spending, that dream can turn into more of a nightmare.
Guest Post by Trey Rollo