Everyone knows that your cash flow is one of the top stressors of a new business. Most small businesses turn to funding from seed investors when money gets low. However, risk and low valuation can keep businesses from getting the money they need to feel financially comfortable. A business owner’s lack of income can impact their ability to keep their business afloat, and a lack of a payroll budget can prevent employees from coming and staying on board.
While a new business venture cannot guarantee a certain amount of sales or cash flow, these three tips will keep you out of debt and allow you to build your company without losing your sanity.
1. Build Up a Cash Reserve
Creating a reserve of cash sounds like an easy thing to prepare before starting a new business. However, many entrepreneurs don’t begin financially fit and/or mismanage their money. Just for reference, you should have at least six months of income, plus save 5% of all of your revenue earned. Many factors change this. For example, if you need to keep inventory, have more legal costs due to trademarks or patents, or have to rent a distribution or manufacturing space, you will need to prepare for higher upfront costs in your budget.
2. Don’t Invest in Unnecessary Business Items
It’s ideal to imagine your new business with a large, beautiful, free-flowing office space and a group of collaborative staff. However, you do not need to invest in these things until necessary. For example, office space is an expense that most businesses don’t need in their first year. A home office or local cafe are the most cost-effective options. If you require a place for additional collaboration or need an official business mailing address, consider a co-working space or a P.O. Box, as they are the next least expensive options.
Additionally, having staff is unnecessary in your new business. As you build up you business finances, you don’t need to be concerned with paying annual salaries and benefits. Consider virtual assistants and outsourcing services so you only pay for the projects and hours you need work done. This will also give you the opportunity to work with qualified, capable people who could potentially be strategic partners in the long-run.
3. Pay Yourself First
When entrepreneurs start their business, they often cut back on everything, work ridiculous hours, and refuse to cut into their business’ profits by not paying themselves. If you are thinking of doing this, DON’T! As the founder of your business, you should pay yourself first. You put in a lot of time, effort, and mental capacity in starting a business. Businesses, especially in their infancy, cannot exist without the business owner; so it only makes sense that they are paid for their efforts. Now, that doesn’t mean that you should be raking in the dough to the detriment of your company. But it does mean that you should be setting aside a livable wage for those first few years. If you don’t pay yourself, you will end up broke, burnt out, and with nothing to show for your efforts.
Relieving financial stress in your new business can help you put your focus where it is needed — on product or service development, customer relationship building, and exposure opportunities. Instead of wondering where your next dollar is coming from, use the tips above to reduce the top stressors of a new business and you can succeed while you can build the venture of your dreams.
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