Many young entrepreneurs like you, mostly aged between 20 and 35, jump in at the deep end. Factors that cause them to jump the gun include but are not limited to the liberty it brings along. More than half of the start-ups fail before getting off the ground, and about 40% of businesses fail within the first five years of their journey. Financial reasons are partly to blame for the abject failure of start-ups despite the excellent products or services. Cash is fuel to keep the momentum going. Actual cash requirements exceed projected cash flows, of which unpreparedness is the biggest reason for entrepreneurs running out of money to meet their day-to-day business operation overheads. Things are complicated further if business start-up loans are difficult to pay off on time.
Research is the key to the smooth operation of your business. Before dipping your toe in the water, make sure your product has enough demand to help you make profitable sales. You cannot meet your expenses if cash flowing in is not sufficient.
5 money moves to make while starting a business
Here are the money moves to make while getting your business off the ground:
- Save up a big emergency cushion
A business cannot reach new heights of success overnight; of course, it will be slow in the beginning months until your business fetches some clients. You need sufficient funding to meet day-to-day operation overheads, and because, in the beginning months, the business will be slow-footed, you should have an emergency cushion.
There is no fixed limit you need to stash away because it largely depends on the type of business you run and your projections about making real money. Your calculations are mere estimation, which highlights the fact that there will be a scope for running out of money, thanks to a couple of factors not at your hand. Therefore, you must have as large an amount of savings as possible.
Your emergency cushion, ideally, should have five months’ worth of your business as well as personal expenses. You cannot claim your share in revenues unless your business hits the breakeven point. For personal expenses, it is quite easier to determine how much money to put in.
Look over your bank statement and find out how much you spend on your personal expenses every month. Lay emphasis on your essential expenses while building up a personal emergency cushion.
- Pay off as much debt as possible
Be liabilities-free while starting a new business because, during its inception, you will be dependent on your savings. Even a little debt can add problems to your finances when your business struggles. The settlement of all of your personal debts once and for all should be your priority.
After the settlement of your accounts, you can easily plan around the allocation of your savings. Some investments are required to run a business effectively and efficiently. You cannot arrange that money without the settlement of your existing debts.
Experts often suggest being debt-free as you may need to rely on instalment loans for bad credit to fund the initial capital of your business. Your chances of qualifying for the loan are high if you are free from personal debt obligations.
Business loans are expensive. They carry high interest rates despite a good rating, and they become due for monthly instalments as soon as you get approval. It means your emergency cushion will be dipped into the payments of your business loan as well. What if you struggle to sell your product? What if your business does not pick up? You cannot bury your head in the sand. You would fall into an abyss of debt if you had personal loan obligations, too.
- Find out whether your customers will buy your products
Many entrepreneurs work months to create a website and social media accounts and do branding. Still, they unfortunately fail to determine whether the product or service they are targeting has sufficient demand. Before launching your product, you should test your product. Give away a few samples to your target customers and let them give you feedback. They will let you know whether they admire it. Did they actually receive some sort of benefit from using your product?
Competition analysis is a must. Chances are your product receives positive feedback from your customers, but it does not have a huge demand. This is especially important in industries like business start-up loans, where understanding the market and competitors can help refine your strategy and boost demand. In case of a lack of demand for your product or service, your business will certainly fail to make profits. You should do some research to know whether there are competitors selling the same product or service.
If you find that you are entering the monopoly market, you should immediately understand that your business will never pick up. Do not live under the impression that you have picked a unique product. Your competitors are in the market for many years. They must have tested the product you are selling. When a product lacks competition, you should immediately understand that the lack of demand can be one of the reasons for it.
- Consult a tax professional
Taxes have a huge impact on your business. You cannot start generating profits without reaching the breakeven point. However, your tax liabilities will be due as soon as you start making revenues. You should contact a tax professional. They will give some pieces of advice to trim down your tax liabilities.
Make sure that the tax professional you contact is experienced. They must know taxation inside out to help you manage your finances. At the outset, you will need to pay more heed to your funds unless your business becomes profitable.
- Track business expenses
Determine your business budget before taking the plunge. You will have to be very careful while spending money on your business expenses. Make sure you have a complete record of your business expenses. Invest in advanced software solutions. Your accounts can help you with this. When everything is in the first place, you will have a better clarity of how much you have already spent. It will prevent you from running out of money, especially if you are in need of money.
There are several unexpected things that go unnoticed, such as one-off annual expenses, subscription costs, bookkeeping, training, educational courses, and marketing software. You should keep a record of all these expenses separately as well. Figure out how to work on your budget to keep their impact as little as possible on your business operations.
Estimation will help you make your budget around your business expenses. Though you will not be able to get the exact amount of money you need, having the buffer helps meet unexpected expenses smoothly.
The bottom line
You cannot just start a business without proper research and knowledge. Many start-ups fail to ensure the smooth running of their businesses because they slip up in careful planning around their finances, including business start-up loans.
You should do research to know whether your product is in demand. Create an emergency cushion so you do not struggle with finances unless your business starts generating profits. Find out ways to reduce tax implications. Make sure you do not have any outstanding debt while starting your business.
Source: financeguruzz.com
