Growing a young business is obviously a critical step to success. If you have a business or are starting one, you probably know the statistics. Something like 80-90% of all new businesses fail in the first year. (I might be making that up, but it really is very high.) And of those that remain, a huge percentage fail in the 2nd year. Get past that, you'll probably do fine.
The primary reason for failure? Well, I'm guessing it's one of two things:
- Poor planning.
- Rapid growth.
The second comes from being so successful that you hit a cash crunch. Your accounts payable increase rapidly but your accounts receivable are slow to be satisfied.
Well, fixing the first problem can help deflect the effects of the second problem. Obviously, the more money you start with, the longer your business will last. Here are a few steps that could help save your small business from becoming a statistic:
- Be frugal.
While planning for a new business, spend money on functional needs. - Be really frugal.
If you don't need $600 chairs when $300 will do, then don't. Chairs for $75 are even better, provided they'll last. - Use the web.
Don't spend money on software if you don't have. Aviva Directory has an article entitled The entrepreneur's guide to web 2.0: top 25 apps to grow your business. All of these applications work in a web browser. The bulk of them are free, and many replace standard paid "Office" software and are compatible with Microsoft Office applications. You could save thousands of dollars. - Cut corners.
But in a good way. Make a full list of everywhere you might save money without skimping. What good is a purchase if it doesn't last long enough to give you value. - Invest your savings.
Given that you could save a few thousand upfront, you should deposit this "found" capital into a liquid investment such as a short-term CD (Certificate of Deposit) or an online savings account.
Pay particular attention to step 3 and 5. In today's world, computer assets are usually important to even a small business, and software is expensive. Step 5 leverages your upfront savings and gives you a bit extra capital to work with.
Only remove the money when you really need it, particularly at the end of the first year, when business is picking up but cash flow, well, isn't flowing just yet. If you've planned well and don't need it until year two, even better.
The plus side is that if you do have some extra money saved away, when you need additional business capital, you'll show the lender that you have enough discipline to plan and save. You become less of a credit risk, and are more likely to get the loan.
Did you enjoy this post?
