The launch of a company is most likely the biggest step forward in your business life – and with it, understandable risks to your finances and reputation. But if you have the right knowledge, you’ll enjoy the immense rewards of financial independence, and ultimately, you’ll control your own destiny. The following 7 financial tips for entrepreneurs launching a startup can help you plan for success while avoiding the all-too-common pitfalls of startup culture.
1. Your Time Is Worth More Than You Think
Bill Gates, one of the world’s richest people, famously plans each day virtually down to the minute. Why? Because even he, with almost infinite monetary resources, cannot buy time. While you’re probably no Bill Gates (yet), it makes sense to adhere to that same ethos.
In everything you do, ask yourself, is this making your startup money? Is this customer wasting your time? Are you spending too much time on social media dreaming of that yacht? It all adds up, and you’ll never get that time back.
Every week and day, make a schedule and review how you spent your time, and how you can improve how you allocate your time for the next day.
Time is your most valuable resource.
2. As a Startup, Keep Your Fixed Expenses Low
Another common pitfall for startups is spending too much time and money on impressing customers (and even friends) with big offices, new cars, and expensive equipment. Entrepreneurs who have made this mistake will tell you that focusing too much on image is neither necessary nor beneficial for a startup.
As a startup, you should be focused on your product or service offering and getting new customers. Everything else will follow. So while you are just getting a foothold in the market, keep your fixed expenses as low as possible. Get that smaller office, lease a less expensive car, and just get the equipment you need (with a mind for growth).
With low fixed expenses, you can then allocate your capital to growing your startup’s revenue to become the larger success you believe it can become.
It’s certainly not a glamorous approach, but you won’t miss the new car you never had, and you can focus on what’s most important – realizing your startup’s vision of success.
3. Manage Your Cash Flow Like Your Survival Depends on It
The reason we phrase it this way is that ultimately your business’s survival depends on your cash flow. It’s very easy (and common) for early startups to be so enamoured with their product or service that they either underestimate the importance of their cash flow, or worse, ignore it all together.
Once you run out of cash, it simply doesn’t matter how good your business idea is — it’s over, and there is no coming back. Thankfully there is a simple fix, and that is to be aware of every single dollar that comes in and out of your business. Make sure you know exactly what money is being spent on, and where money is coming from.
If you’re not a numbers person, that’s totally okay, but be sure to delegate either a staff member or professional service provider to take care of your accounting for you. If either of those are out of the question in terms of budget, there are plenty of online accounting platforms that will help you with your cash flow management.
4. Customer Acquisition Is Your Startup’s Lifeblood
You might think we are stating the obvious here, but when you are building your startup you will often find yourself distracted from your core task, which is acquiring new customers.
As soon as you have taken advantage of the low hanging fruit, start exploring other customer acquisition channels. A great place to start is customer referrals — the costs are minimal and word of mouth is proven to be the world’s most influential form of advertising.
Optimise and scale your approach to customer referrals, and then move on to other channels, such as social media and traditional advertising and marketing after that.
5. Plan for the Best, Prepare for the Worst
It sometimes happens that clichés are clichés for a reason, and that reason is that they are a fundamental part of the prevailing wisdom. In this case, well, stuff happens. Entrepreneurs cannot predict everything that will happen in the future, so it would be a little arrogant to assume that nothing will go wrong for a startup.
It is important to be prepared when things go wrong (and they will), so that any falls can be cushioned by rainy day funds.
From the beginning, don’t quit your day job until you are certain your new startup can support your current lifestyle.
Additionally, keep two emergency savings accounts, one for your personal use and one for your business. That way when things go sideways, it’s not the end of your business endeavours.
Finally, you might be tempted to either pocket all of your profit, or put all of it back into the business. While the latter is more responsible than the former, there is a more prudent option, and that is to invest. Your first port of call should be to invest at least 10 percent of what you earn yourself into a retirement fund. Alternatively, you could look at micro-investing, or putting funds into an index fund.
6. Be Specific in Your Financial Goals
You’ll be almost obsessed with your idea if you’re like most entrepreneurs, and you’ll realize its value to your audience. When it comes to setting financial goals for your startup, they might fall by the wayside.
As a result, you may have non-specific financial goals such as “We will turn over a million dollars in our first year”. However that lacks definite and certain sub-goals of how and when to get there.
It’s okay to have those big, lofty, and general financial ambitions, but make sure you break it up into actionable, achievable milestones that are aspirational, but well within your grasp.
When you regularly hit the smaller goals, you will instill confidence in yourself that you are heading in the right direction, and down the path to the ultimate goal — a fully fledged, successful company.
7. Make Sure You Pay Yourself Enough… but Not Too Much!
You have always had to walk a fine line as an entrepreneur; do you pay yourself the bare minimum so that you can focus on the growth of your startup business, or do you lavish yourself with your newfound financial independence?
Naturally, the answer lies somewhere in the middle, and only you can determine the right balance.
Pay yourself enough so that you can maintain your current lifestyle, or perhaps a little less lavish than that. There is no point in paying yourself so little that your personal finances impact your ability to work optimally for your startup.
Don’t go overboard with your personal spending. If you keep your eyes on the prize of a successful startup, you will eventually see your personal financial success.