Startups can stumble early on if they encounter financial issues and are unable to overcome them efficiently.
Here are some tips that should help growing businesses steer clear of debt-related dilemmas altogether.
1. Build a budget
If you start a business without a carefully thought out budget, you will be destined for disaster before you have even made a sale.
Thankfully it is simple enough to make a basic budget for a startup using a Google Sheets budget template, and it makes sense to plot this out month by month, as well as looking ahead to plan annual expenditure.
Straightforward budgeting advice applies for businesses as well as consumers. Map out your fixed incomings and outgoings, account for one-off costs that may crop up and have a fallback plan to deal with any unexpected emergency expenses.
2. Cut costs
There are a few ways to make your money go further when running a startup, and this might be essential if it looks like you could end up with mounting debts to manage if you do not take action.
Reducing unnecessary expenses is a good move and there are lots of ways to go about this.
You might opt for second hand IT equipment rather than shelling out for brand new hardware, for example. You could also outsource certain aspects of your operations to third parties on a freelance basis, rather than hiring full time members of staff to cover duties that you only need completing sporadically.
You can also cut costs and boost productivity by embracing remote working, which is increasingly seen as advantageous for businesses of all sizes.
3. Keep credit card spending to a minimum
Covering business expenses with a credit card might seem like an easy option, but this is also a quick way to rack up debt which has a high interest rate attached to it.
You will then end up having to pay off way more than you borrow, meaning that this short term solution has negative long term impacts.
4. Get funding
The old adage is true; you need to spend money to make money. But where do you get that cash in the first place?
Creating a new startup is still one of the most exciting things you can do in life.
There is something about taking a simple business idea and turning it into a successful business with thousands of customers or users that makes the whole process so special.
Simple things like product development and getting your first customer are also milestones worth celebrating.
Before you can reach that level of success, however, you need to figure out how to best start your new business venture.
More importantly, you need to decide the right type of funding you want to use for the new startup.
There are a lot of options to consider, but we are going to focus on three funding options for a new startup in this article.
Bootstrapping – which is basically self-funding – is how many of today’s most successful startups were initially financed.
Rather than relying on a loan or an investment from a third-party, you turn to the money you have saved and help from friends and relatives.
Bootstrapping is great for two reasons.
First, you retain complete ownership of the startup. This means you can make decisions more rapidly, adapt to market changes in an agile way, and gain a lot of advantages over companies with complex decision-making processes.
The second advantage is the flexibility.
Since the startup is fully self-funded, you can be more flexible with the way returns are shared among those who lend you money as well as with yourself. You can also be more flexible with the way you attract new investors in the future.
However, bootstrapping has its limitations. Unless you have sufficient funding for your startup, you will have to turn to other financing options at some point.
Another way to fund your new startup is by using business loans.
This too is an interesting approach to starting a new venture. You get the funding you need to get started, but you are not giving away ownership of the company. Instead, you pay a fixed fee to the lender in the form of interest.
The third funding option we are going to review is crowdfunding.
When you know you have a great business or product idea in your hand, you can turn to potential customers for funding. Through platforms such as Kickstarter, you can raise the funds you need to turn your prototype into a mass-produced product.
Crowdfunding also allows you to retain ownership of the startup. That said, you have to convince potential customers and make sure you can deliver on those promises for the crowdfunding campaign to be successful.
So, which of these three funding options are best for your new startup?
Whether you use one of these funding options or one of the other alternatives currently available, consider the advantages and disadvantages of the options you have and choose carefully based on how you want to establish your business.
Ultimately it is obvious that all businesses will need to accept the need to be burdened by some form of debt; it is merely a case of planning for this and managing it responsibly, rather than letting it spiral out of control.