When you are a start-up or small-to-medium business, the proper management of your finances and establishing a strong financial state is critical, yet often it is nothing but an afterthought for excited and budding entrepreneurs who will do anything possible to get the ball rolling.
One of the biggest pitfalls for new start-ups and SMBs is financial ruin – most of these new companies do not have much cash to splash around, yet many still do. It’s not just this either, bookkeeping, taxes and accounting are all stress-inducing factors for the founders of these new businesses, and this can cause them to go under.
By staying out of debt, however, new companies can help themselves stay afloat even when cash is tight. Loans, especially those targeted at new businesses, can be an attractive prospect, however, they should be avoided wherever possible. Remember, loans always have to be paid back; how can you do this if you do not have a steady revenue stream?
Loans are great when you have had some growth and are ready to scale up your business, but they should be avoided in the very early stages when you are just establishing your company. Here are some tips for growing a debt-free business, loan or no loan –
Managing Cash Flow
One major reason for start-up failure is running out of money, often caused by a lack of cash flow management. When you are running a business, you need to account for every single penny and know where money is both coming from and going to.
If you neglect to stay on top of your cash flow, you will put your new start-up or SMB in a very precarious situation. It doesn’t matter how great your business idea is, when you run out of money you have two choices – i) take out a loan; or ii) call it quits. Many business owners when faced with this ultimatum will opt for the former, and you can easily avoid debt by proper cash flow management.
Prepare for the Worst
Although you should be remaining optimistic about your new business and its success, you never know what can happen. It is easy to be blindsided by problems when you least expect them, and by having some cash stowed away on the side can help you alleviate these problems when they crop up and prevent you from having to take out loans to cover sudden business expenses.
If you have a full or part-time job, keep it until your business is generating money from which you can take an income. Don’t quit your job and obliterate your personal income source until it can be replaced by your new company.
Hire or Contract an Accountant
Yes, you probably can’t afford to hire a full-time accountant, but that is fine – you don’t need one.
You should contract an accountant, however, as they can help with all aspects of your finances. From taxes to bookkeeping and securing investments, having a good accountant on your side who is familiar with your industry and has a good reputation can help you out with more than just balancing your books. In many ways, accountants are great business advisors and can help you run your company as well as keep you out of the red.
Don’t Buy Everything
Do you really need a fully-furnished office kitted out with all the latest tech and cool furniture? When you’re starting out, probably not – that should be something you work towards!
Lots of new businesses ruin their finances with frivolous spending on things which they don’t need and may never use. Your new start-up or SMB should be saving money wherever possible, and buying that three-seater leather sofa for your office isn’t going to help you do that. If anything, it pushes you closer to the red by squandering finances which could come in useful later on down the line.
Amazon’s main headquarters was a dingy office located down a back alley, with Jeff Bezos still using the same recycled wooden pallets as a desk well into the website’s success. Learn from that!
Set Financial Goals
Rather than just thinking about wanting to earn X amount of money, set a goal to do it and have a series of miniature goals which you can work towards to help reach your final one.
Revenue goals enable you to stay on track with your finances and make adjustments wherever necessary to help growth. They also ensure you are constantly up to date with how much money your company has and is earning, enabling you to make better commercial decisions and give you the confidence needed to keep pushing on through your business’ journey.
When you start hitting your revenue goals, you will put off unnecessary spending as it will detract from the great feeling you get from reaching targets.