Unless you’ve been able to convince a venture capitalist to part with some of their cash, your startup will probably have a tight budget with which to kickstart your business. However, even venture capitalist backed startups with millions in the bank can have an unsustainable burn rate. So, if you want to turn your startup into a business that lasts, you need to get to grips with your finances in order to avoid debt crushing your entrepreneurial aspirations. Here are a few tips to help you steer clear of one of the most common startup pitfalls: crippling debt.
Flexibility in Your Plan
Be flexible with your vision of the company. You might see yourself owning a chain of big-box retail outlets, but a better option might be to run an online store or purchase a small space. Online stores generally do not take as much initial capital as brick and mortar businesses yet they can scale up much faster and with less capital investment.
Thoroughly Research Your Niche
Make sure that there are customers clamoring for your products and that there is enough demand and potential clientele to quickly satisfy any accrued debts. Read forums and trade journals to assess the demand as well as studying your competition to find out how well similar products are performing. The biggest factor in startup failures is a lack of knowledge in your target market. Limit the risk by doing your homework.
Be Minimalistic in Your Sourcing
Many startup owners believe that they must have everything under the sun when they first establish their business, but they soon find that the expensive office equipment they paid for is sitting in the unused back room and they are stuck in a long lease. Do you need three pallets of office supplies? Purchase everything which is necessary, but nothing more.
Barter for Services
Look around the area to find other small business owners who would be open to trading your products for their services. Bartering for services is a great way to assess demand for your product, spread awareness via word of mouth and also cut back on expenses.
Share Costs With Neighbors
Find out whether there are any costs that you can share with neighboring businesses. If the business beside yours has internet access, can you use theirs? Can they use a part of your storage area? If you placed a combined order for supplies, will your supplier give you a lower price? You want to make your business flourish, but you are not alone: be innovative and use that to your advantage.
Keep Your Day Job
There are some business ventures that enable you to keep your full time job during the startup process, something that is very common for online startups. For instance, if your new business does not require a physical space, you can keep your day job and work after hours on the new business at home. This allows you to develop more capital for the new business, research your prospects, and keep your insurance plan.
Tapping Into Your Savings
If you’ve been managing your personal finances, you will probably already have savings put aside for a rainy day – which is what a startup is. Now, before you raid your piggy bank you need to be aware that this is a risky strategy and that you’ll be left high and dry if things don’t go according to plan with your new business – which is quite likely. However, if you do use some of your savings to get started, you can pay yourself back when you start making a profit with your business.
Pitch to Angel Investors
Angel investors invest in businesses in exchange for a shareholder’s stake and/or minimal amounts of operational control. These individuals are successful in their own right, and can be used to network with other businesses and people in your niche that they know as well as information resources for your own business. These angel investors are interested in your success, so even though you’ll have to give up equity, they do improve your startup’s prospects.
Buy Used Equipment
Used office furniture works just as well as new furniture and can sometimes be up to 75% cheaper than buying new. There is no stigma attached to a desk with scuffs, it only shows that you have been working. There is no problem with a used chair as long as it is comfortable. If people do come into your startup office and are more worried about how it looks than your service/product, then you’ve got to ask yourself whether these are the sort of people who really have your best interests at heart.
Ask Friends and Family
Your friends and family may have money stashed away for a rainy day. If you can successfully pitch them and convince them that you are serious about your business, they may loan you money at reasonable rates. These friends and family members, like angel investors, are interested in your success because their own money is tied up in it. There are problems though: when things go wrong it’s not just an investor who you have to appease, it’s your parents or your best friend.
How do you avoid debt crushing your startup?