90 percent of startup companies do not fail within the first five years because they have bad products or bad employees. These companies fail because they are undercapitalized. In order to get past this initial phase of business, you must practice very sound financial theory. Here are some of the best suggestions that have been utilized by Fortune 500 companies.
– Pay yourself first
By “paying yourself first,” you are giving your business the thing that it needs to survive more than anything: financing. As stated above, the number one reason that companies do not survive past the five year mark is capitalization. Creating your own cash reserve is the first step to building your business credit and maintaining trust with financial facilities before you have a record of accounts receivable. This must become just as important a line item on your budget as lights and power.
– Create a realistic budget that your company can actually stick to
Many start up business owners try to avoid undercapitalization by creating budgets that are so tight that no one could abide by them. You may think that you are impressing your potential banking partners by lowering your expenses so much that even small revenue numbers make your ROI look great, but the truth is that you will never be able to keep expenses that low. As a matter of fact, if you already have a relationship with a banking institution, you should factor in at least 10 percent lost sales and a kitty for emergencies. Bankers actually look for this and reward you if you think ahead this far. Contrary to popular belief, no one respects a bare bones budget.
– Give your business a professional look from stem to stern
In order to make a good first impression with the public, you first have to believe in your own brand. Spend on the niceties such as designer checks that will help to make your business seem like a business. Many business owners think that they cannot afford any cosmetic adjustments on a startup budget. However, style is just as important as substance in the business world of today. People are likely to pay more for a service that comes from a business that believes in itself enough to invest in the look of the company as well as in R&D.
– Find a great financial institution as a partner
There is absolutely no way that you will be able to navigate the financial waters of the modern business landscape on your own. You will have hiccups that you cannot solve. It may be difficult to form a fruitful relationship with a business bank at first, but accept the small indignities in order to build a lasting relationship. For instance, if you have to put your personal credit on the line or get a cosigner for your first line of business credit, research your options and take the best one. The secret to a strong financial structure is to re-negotiate when your position becomes stronger, not to hold out for a veteran deal when you are just a rookie.
Aside from the tips above, make sure that you always keep your ear to the street when it comes to new financial rules, regulations, grants and tax breaks that can help you. Creating a financially viable company is more difficult in the modern business landscape, but it is not impossible at all. Outsource your finances when necessary. Keep an eye on every penny. You will have a much better chance of success if you balance this financial responsibility with good product research and proper marketing.
