Cashflow Problems for Startups Are Nothing New – Here’s What You Can Do
It is always a bit thrilling to start a new business but along with the thrill comes a certain degree of anxiety. You are, after all, venturing off into the unknown and no matter how familiar you are with the market and the products or services you will be selling, you just can’t predict how you will be received by the audience you are targeting.
Having said that, the one thing you can probably count on is a few bumps in the road, especially where cashflow is concerned, so it is best for your company’s survival rate to be prepared. Here is some of what you can do to mitigate cashflow problems once they start and perhaps even avoid a few in the process.
Start With Clear Projections
One of the main problems many startups encounter is not beginning with clear projections. This pertains to both expenses and income. By recording the money you have on hand and then balancing that against what you hope to net, you can begin tailoring your budget to keep your startup out of the red. Get team members involved wherever possible and document every little item.
By doing this, you will have what amounts to a black and white flow chart just waiting to be crafted. Those projections will also help you begin seeking financing before you find yourself in financial crisis. If you see that on your current path you will have used up all your resources early on in the game, you can begin looking for loans and other ways to keep materials and equipment coming in while you work towards increasing sales, for example.
Seek Loans You May Not Have Considered
Small business loans are sometimes not as easy to qualify for as you might have thought. As a startup, you will need to have a strong business plan and mission statement if you have any hopes of getting a loan by conventional means. Some lenders are more willing to work with startups than others, and if you find yourself without a conventional lender to underwrite a loan, you might want to check out alternative methods of financing.
If you have a decent personal credit history, you might be able to find one or more buy now pay later loans that will keep materials coming in while you begin to sell products. Sometimes you can use invoice factoring and discounting to get money in the bank while awaiting payment from clients and other times you can seek financing from such things as angel investors or crowdfunding solutions. These may expect payment in profits while others might simply wish to be repaid with interest.
Keep Your Expenses as Low as Possible
One of the biggest mistakes so many startups make is in spending too much money right out of the gate. It isn’t necessary to try to impress clients by renting a high-end property or ordering a fleet of vehicles when they aren’t exactly needed just yet. Don’t get carried away with spending initially. There will be time for that later once the money starts rolling in.
On the other hand, you can’t afford to deny expenses necessary to the day to day running of your new business. This is a mistake many startups make. They cut their expenses so far back that when they realize they really needed that equipment or those materials, they find that there is no budget to cover them. It is good to be frugal but it is better to be practical and prepared. What good does it do you to stall progress while you seek financing?
Not Setting Aside an Emergency Budget
Anyone who has ever been successful in business will tell you that Murphy’s Law prevails in the land of commerce. One of the best bits of advice you will often be given by seasoned entrepreneurs is to always have an emergency fund set aside for those times when something goes wrong in the moment. There is often no time to wait for funding or applying for loans, and this could damage your reputation irreparably.
You are starting out and so staying on target means much to those customers waiting to receive shipments of products they literally took a chance on. It is important to show that you are as dependable as any competitor with a history, and so that emergency fund is much more important than you might think when getting started.
Balancing Startup Terms with Expectation from Clients
This is another huge mistake many startups are prone to when making a bid for new clients. Bear in mind that all clients will be new to a startup and you can’t afford to give them special terms. You didn’t get any special deals for being new, did you? Did your landlord offer you lower rent because you are a new tenant and did the power, water or ISP give you a new customer deal?
You might get a sign-up deal with your ISP, but as far as city utilities or the power company go, you won’t be getting lower rates just for utilizing their services. While you want to use incentives to capture new clients, as a startup you have to pick and choose those incentives wisely. Once you are established you can do things like offer new client discounts and freebies, but until you have a strong foothold in your market, keep those freebies to a minimum.
Whenever Possible Find a Mentor!
As one last bit of advice for budding entrepreneurs starting a new business, there is much to be learned from a mentor. It doesn’t necessarily need to be someone in the same business, but it should be someone who has been successful in their own right. This is a person who will give you honest advice and be strong enough to keep that advice honest.
Sometimes they have things to say we don’t want to hear, but a mentor knows that even that is what it takes to succeed. When it comes to cashflow problems, a mentor has been there and done that so listen carefully! The will help you avoid the same traps they fell into and that’s what a good mentor has to offer if you want to avoid the same cashflow problems they encountered.