Nothing kills a business faster than not being able to turn a profit. That holds true for a business at any stage, but is especially deadly for entrepreneurs who are trying to move their business past the start-up phase.
No one can plan for the future with total certainty, but there are three measures you can take to help weather-proof our new businesses.
1. Expensive Start-Up Costs
Starting something from scratch is always a herculean effort, and starting a business is no exception. The costs associated with any start-up can be daunting. There’s rent to pay, new desks to buy, and people to hire. If you aren’t careful, you can end up swimming in a mountain of debt. The important thing to do is make sure to minimize your start-up costs and debt before you even open your doors.
If you have seed money and/or you’re working with a group of investors, don’t feel the need to spend every dollar you’re given. Be judicious with your start-up funds. Instead of purchasing new, top-of-the-line equipment, buy used when and wherever you can. If you don’t need something right away, don’t buy it. Delay those expenses as long as you possibly can to help give you time to bring in revenue. The more time you can give yourself to cover your start-up costs, the better.
2. The Drain of “Cost-Creep”
When we’re first starting out, it can be difficult to know how to reinvest our money into our business. From advertising to expanding, there are a million different ways we can spend our money as we become more profitable, but we have to be weary of the dreaded “cost-creep”. The two most common places the cost-creep shows up is in small expenses that add up to a large bill, and in our cost of sale, when we commit future revenues instead of expenses, and are blindsided when our bottom line is mangled when we begin generating income.
If you feel like you’re beginning to experience cost-creep, take some time to stop and really reevaluate what you’re spending your money on. Maybe those TV spots were fun to create, but they really aren’t drawing in the business you had hoped for. Or maybe, you need to take another look at a contract you signed with an employee. If that’s the case it’s crucial you make adjustments as quickly as possible to avoid damaging your business beyond repair.
To avoid them on the front end, keep detailed projections and visit them regularly. Constantly staying engaged with your money and evaluating what does and doesn’t work will help you keep your costs down, and your revenue growing.
3. Environmental Impact
Sometimes, despite our greatest efforts, our budgets are thrown for a loop. Maybe the supplier we’re buying from increases the cost of goods, our competitors start lowering their prices to increase their sales, or the economy takes a hit. There are always going to be external forces that take a toll on the profitability of our business. However, those forces don’t have to mean the end of our business.
As a wise man once said, “Hope for the best day, but plan for the worst.” Holding reserves for your business can mean the difference between surviving and resigning. The rule of thumb for any business is to have at least three months of operating expenses on hand at all times just in case things go south. By keeping a detailed budget, you’ll know exactly how much money you’ll need stowed away to survive any shortcomings.
Additionally, being pragmatic about the fact that markets shift, keeping a close eye on our finances, making sure we hold our money accountable, and trying to minimize costs are all key ways to help weather the worst of start-up storms.