Starting a business is a common life ambition, but not everyone will realise this dream. Making the move to starting your own business is incredibly daunting, as there is no stability when you’re just starting out.
All most wannabe startup owners have in the beginning is their passionately held belief that they can make a real difference in the world with their winning idea.
But, of course, passion isn’t the only thing that will help you turn your business dreams into a reality.
Here are some practical tips on how to make the entrepreneurial leap and not ruin your finances in the process.
Step One: Develop An Entrepreneurial Mindset
You will need to come up with an original business idea in order to succeed. Think in terms of problems your potential customers might face and how your business can provide them with an original solution. This will ensure that you create a viable and robust business model that will provide real value to your customers’ lives and keep them coming back to you in the future.
Once you have identified an original and meaningful business idea, you will then need to become an expert in your field. Part of building a credible business model will hinge on the customer’s ability to trust in your brand. Therefore, it is vitally important to develop your career skills and self-confidence in your chosen industry.
Step Two: Start Planning Financially
You may be limited to a very small budget to start off with, this is why proper financial planning is essential in business. You need to make every penny count.
Start with a clear vision of how much capital you will need for year one. Planning for year five in business, up to 10 and 20 will also be required, but that comes later. This will help you break down everything you need to do into stages, to help you craft a business plan that is both scalable and profitable over time.
To figure out how much starting capital you will need you will first need to think about your everyday budgeting needs. For example, you will need to ensure things like your rent and bills are covered as your business is being established.
In these beginning planning stages, you will be tempted to put in as much of your own money into your business as you possibly can. However, you will also need to factor-in how much you want to save, for your own financial future, away from your business. For instance, you will need also need to save towards your retirement, whilst simultaneously building your business up from scratch. You may also find that you need to go on a vacation to unwind once a year. Working constantly to build your business shows dedication certainly, but you do not want to sacrifice things like a stable and happy life for the sake of your business. There needs to be balance.
Step Three: Think About ‘What Ifs’
In pursuing any sort of business goal or plan of action you will need to come up with a list of ‘What if’ scenarios such as
- What if the seasonal differences negatively affect the number of sales you make, how will you sustain your business through these slow periods?
- What if your business was to face an unexpected bill? How much have you got saved to help you out with things like tax bills?
- What if a competitor crops-up who can offer the same products at a lower price?
- What if you get a large order for goods, how quickly can you ‘scale up’ in terms of staffing and equipment to meet the needs of the customer?
This will help you develop strategies for saving and funding through best and worst case scenarios, crucial in helping you maintain working capital in all stages of your business’ development.
Step Four: Start With What You Have
The most important financial rule for entrepreneurs;
Don’t spend money until you’re making money.
Doing things like remortgaging your home to raise startup capital is a hugely risky thing to do. The minute you take out any sort of loan, you will have to start paying that money back, regardless of how long it takes for you to start seeing a return on any of the investment funds you’ve put into your own business.
Further, taking out a loan to buy equipment and inventory may completely backfire, in which case you may be left with no money left over to pay the loan back. For instance, you may have invested in 1,000 t-shirts for customisation only to find that the material is incompatible with the printing method you’re using or the particular style is just wrong for your target customer. It is only sensible to approach a lender, or potential investor, once you have started to generate sustainable profits. You will need to prove that your business presents a worthwhile and low-risk investment opportunity.
Your Time and Energy is Precious
You should also think about the time you are investing in your business, in the same way as your precious saving funds. If you can shorten the amount of time you spend on repetitive business tasks, you can invest your energy into more productive things, like strategy and business development.
Use the digital world to your advantage and take all the available shortcuts — even time-consuming tasks like setting up an ecommerce business can be streamlined and simplified. There are subscription services that can help you with techy things like creating your own online store, without having to learn HTML. Further, these services will allow you automate much of the sales and bookkeeping tasks automatically. Allowing you to quickly monitor your sales, profits, stock levels etc. all from one easy mobile dashboard.
You can also automate social media posting and streamline financial processes by using finance apps like Xero — start exploring time-saving apps sooner rather than later, as they will help inform your business growth and allow you to create a business that’s headed in the right direction.
Step Five: Expand Only When the Time is Right
As mentioned previously, any capital you seek in terms of loans and investments should be for expansion on a viable business model, as you won’t want to sign away company equity without being able to guarantee the returns for your potential investors.
Before you approach any lender you will need to understand your company’s financial status, work out your goals, create a plan and then review it regularly, to ensure you are bringing in the maximum results.
Crowdfunding is an exciting new way to seek business funding — check out startup favourite Kickstarter or British alternative Crowdcube. If you’re a dynamic startup with a great idea that could inspire millions to get involved with, you will also need to think in terms of what your micro investors will get in return for their hard earned money. Does your business inspire wider societal benefits? What clear goals can your investors see and be a part of in helping you to expand? And most importantly how will their funds be spent in the most effective way?
If you have worked hard to develop an entrepreneurial idea that presents real value and have the financial plan to back it up, you should be well on your way to reaching your entrepreneurial goals. The most important lesson is to start off small and have a realistic view of your financial needs, both inside and outside of your business goals.