The most difficult thing for every business owner is ensuring enough cash for a seamless flow of business projects. According to a study [source], about 60% of small businesses get closed in the first five years. The main reason for such a low startup survival rate lies in the fact that most of them are founded by first-time entrepreneurs, usually younger than 30 years of age. Their lack of experience leads to uncontrolled expenditure or inappropriate money management. So what can we learn from their failures in terms of business finances?
Make Realistic Bids
Most startups have up to 10 workers. It means that they can handle no more than two projects at a time. However, overzealous startup owners often take too large bites that suffocate their business. This is why every business owner should bid for projects that they can do with the workforce and assets they have at their disposal. Moreover, there have to be legal mechanisms in every contract that protect you and your employees from late payments.
Learn that Money is Expensive
Younger people, in general, tend to misunderstand the nature of money, no matter if they are rookie entrepreneurs or just ordinary guys. The thing is that money is pretty expensive. If you stop to think about it, you will realize that the concept of working for money means that you have to invest a lot of time, concentration and knowledge to earn a payment. An article published by the Mirror shows that on average we spend almost 100,000 hours at work during our lives. It really takes a time to make money and be able to afford something. This is why every startup owners need to be strict with expenditure. Try to avoid credit cards as much as possible for your needs, but allow your clients to pay in different ways, including cards, checks, and other gradual payment methods. And what is most important – pay all your bills on time.
Recognize Market Fluctuations
One of the most important soft skills in the modern business world is determining the price margin. While it is still easier for retail businesses to make exact calculations, business owners working in the service field can learn some pricing strategies for this sector. No matter what field your work in, you should play with prices to find the right technique for your business. For instance, if a product or a service cost your business $100, the final price you offer to buyers should suffice to cover all the expenses you had to make that product or provide the service. Also, your workers’ wages and overhead expenses need to be calculated in the price, together with the taxes. The market will determine whether or not such a price is acceptable. If you fail to cover all the expenses with your final price, you should either reduce it, to make profits with a larger number of sold items or stop offering that service/product.
Allow No Debt in Your House
When it comes do debt chasing, you need to be fair, but strict. This means that you can do favors to the debtors that used to be loyal and paid their invoices on time, but you should strictly limit the number of such business associates. For instance, you can determine five or ten important clients and they can have a different status. It happens that once-successful companies find themselves in hard problems and you should stay by their side in such a situation. All the others, however, should know the exact payment date and your invoice terms. If they fail to deliver their debts on time, do not hesitate to consult a debt recovery agency to chase your debts. You need a good solicitors for business services in case your debtors fail to pay invoices timely.
Running a startup is no bed of roses. It is a bumpy path covered with thorns and sharp stones. But if you are a self-disciplined, determined person who learns from other people’s mistakes, there is a high probability that your business will be among that 40% that survives the critical five-year period and becomes a renowned brand.
John Stone is a business consultant and regular contributor to Bizzmarkblog. He believes in the notion that form should always follow function and that thinking outside of the box is a prerequisite of being a successful entrepreneur.