Imagine starting a new business, investing all your time and money to get your startup off the ground and meeting with startup failure within the first five years. According to startup statistics, 10% of startup fails within the first year while 70% startup fails during second to fifth year. With such a high startup failure rate, how can you save your new business from facing the same fate as the majority of other new businesses? For that, you need to identify the reasons why startup fails.
CB insights studied more than a hundred startups who failed and came up with top 20 reasons why startup fails. According to the analysis, no market need (42%), running out of cash (29%) and not having the right team (23%) are top three reasons behind startup failure. Most startups have to shut down due to cash flow problems and financial issues. If you don’t want your startup to bump into financial issues, you need to keep your startup costs under control.
In this article, you will learn about six golden rules you should follow to keep your startup costs under control.
Create A Prototype
Most entrepreneurs focus on building a great product or service and takes the “create first, monetize later” approach. The problem with this approach is that you will be continuously spending money but not earning any money. Soon, you will have nothing left. Instead of creating a product and pushing it to the market, entrepreneurs should create a minimum viable product or a prototype to get the ball rolling when it comes to revenue stream.
It not only helps you set the right expectations by letting investors gain visibility of the product but also provide users with a working product to interact with. This allows you to collect feedback from end users and improve the prototype before launching the product to the masses.
Spend Your Money Smartly
One of the main reasons why new startups land into financial crisis is because they try to scale too fast. Due to this, they end up spending all their money they have in quest to expand their business. Once they run out of cash, this is when things starts to go awry. They realize that they have spent too much money too quickly, which led to their downfall.
The best way to overcome this problem is to think of your business journey as a 26 miles marathon race, instead of a 100-meter sprint. If you treat your startup expansion plan as a long marathon race, you will jog slowly towards your target and avoid spending more energy (money) at the start of the race.
Prioritize things that you need and spend money on them instead of buying everything you lay your eyes on. You don’t need new furniture or expensive equipment when you can do away with pre owned stuff. Compare prices and look for best deals. Buy items that deliver you the best value for your money. Your capital is a finite resource, so you should use it wisely.
Manage Your Cash Flow
There are instances when your startup might have to deal with slow recovery of cash from clients, which could disrupt your cash flow. This is when your cash flow management skills will be tested. Create a strict invoicing policy that clearly communicates that you will not accept delayed or late payments. You can even fine clients for late payment a small percentage of total amount so they will not make late payment a habit.
Another way to encourage customers to pay faster is to offer them a discount on paying their bills early. Send reminders to clients who have yet paid for their orders especially when the deadline is fast approaching. This will ensure smooth cashflow and help you to prevent your business from getting into a cash crisis.
Don’t Ignore Small Expenses
It is much easier to keep track of your large expenses but the same can not be said for small expenses. These small expenses can pile up very quickly overtime and can fly under the radar. By the time you even know it, they have eaten up a major chunk of your budget.
Here are some of the small expenses that you can not afford to ignore.
Since these expenses are variable and small in nature, they are often overlooked but they can disturb your budget if you let them to. Always allocate a buffer in your budget to cover up these expenses.
Avoid Making Purchase Decisions Based On Emotions
We all know how big brands play with our emotions and persuade us to buy their products. Same happens with startups and businesses. As a business owner who has a tight budget, you cannot afford to make impulsive purchases. That is why it is important to never make purchase decisions based on emotions.
Ask yourself, “Does the product I am about to purchase help me save money or make money?” If the answer is no, you should not purchase that item. Stopping yourself from purchasing things that you don’t need might not be easy as there is temptation but if you want your startup to be money smart, you will have to resist that temptation. There is nothing wrong in throwing a lavish party to celebrate your success and achievements or taking your employees on exclusion and trips occasionally, but don’t spend money on things that you don’t really need.
Freelancing and Outsourcing
We have already talked about small expensive, now let’s talk about large expenses. Paying the salaries of employees takes a major chunk of your startup budget. You can drastically reduce the staffing costs. You can also find freelancers on freelancing websites such as UpWork and Freelancer. Whether you are looking for a virtual assistant, digital marketer or accountant, you can hire them by paying a fraction of what you pay to a full-time employee.
How do you minimize your startup costs? Share it with us in the comments section below.
The post 6 Rules Entrepreneur Should Follow to Keep Startup Costs in Check appeared first on ArcticStartup.
Originally published on ArcticStartup : Original article