According to most surveys, nine out of ten startups result in failure. The reasons for this are numerous. Sometimes a company has several owners, all with different plans for its future. In some isolated cases, startups get ruined by a PR scandal that completely destroys their business reputation. Nonetheless, in the greatest majority of cases, the reason for a failure is a financial one. With this in mind and in order to prevent such a thing from happening to you, here are a few budget tips for bringing your baby startup to its feet.
1. Make An Estimate
In the very beginning, you need to try and make an estimate of your company’s earnings before you even launch. The best way to do so is through a research of other similar enterprises in your business niche. If you’re a pioneer of the industry, well… in that highly unlikely case, you will have to go with the educated guess. One more thing, when you’re forced to give a rough estimate, it is better to be a bit more of a pessimist than an optimist. While such a thing may be bad for your morale, it might also show you what a worst-case scenario will look like well ahead of the time.
2. Think About Hidden Expenses
Sure, everyone can remember to include the price of the office lease, the cost of purchasing hardware and buying software licenses, as well as the taxes needed to start a new business into their expenses. However, there are some hidden expenses that most people tend to overlook. We are talking about things such as employee bonuses, permits, office utilities and of course equipment maintenance and upgrades. While individually none of these expenses amounts to much, together, they may be more than your, already strained, budget can handle.
3. Inexpensive is Not Cheap
Next thing you need to realize is that while going inexpensive may be a good thing, being cheap is definitely not. So, if there are two pieces of equipment or software that have, more or less, similar traits you should definitely go with a cheaper one. On the other hand, if such a course of action would hamper your productivity, it should be avoided at all costs. The most popular example of this would be the dilemma of whether to go with MS Office or an open source alternative. Here, however, the subjective impression of your employees may play a key role so never turn your back on their feedback.
4. Start With Enough Money
Another thing you need to be aware of is that for most businesses it takes 6 months to 2 years until they become fully profitable. This means that, when applying for a loan, you might need to take a bit more than you initially intended. You can go to a bank or a credit union and apply for a loan, but in order for this to work, you would first have to present them with a strong business plan, as well as a flawless credit history.
One of the ways to deal with this is to try and take few smaller task-specific loans for which you won’t have to undergo such a rigorous background check. For example, companies such as ALC Commercial provide no-credit-check commercial fit-out loans, which would mean that you can cross this vital task off your list. Later on, you can always consolidate these loans and make them into a single larger one.
5. Don’t Overinvest
Finally, you need to keep in mind that one of the greatest problems young enterprises face is that of overinvesting in their business if things start out good. Once the increased workload becomes a problem, it might be better to hire some freelancers, virtual assistants or even outsource rather than heavily invest in opening a new in-house department. You see, all but the last option gives you a lot of flexibility and maneuvering space, seeing how this momentary success might be just a fluke (a potentially dangerous one).
While no list would be elaborate enough to name all the financial hazards of a startup’s first year, the abovementioned five are by far the mostcommon. What this means is that they have no direct correlation to the specific business niche your startup belongs to. Simply put, they are the basic rules of running a small company’s budget during its infancy.