Acclaimed business strategist Idowu Koyenikan once wrote: “If you are going to be in business, you must learn about money: how it works, how it flows, and how to put it to work for you.” And he’s right. Without a complete grasp of your finances, your business will almost certainly fail, no matter how good your idea or service might be.
Being across your accounts and cash flow is critical at all times of your business lifecycle, but none more so than right at the beginning, when you are taking your first baby steps into the marketplace.
If you’ve done your business planning thoroughly and worked on your projected figures, profit points, investment strategy, marketing mix, and more, you will have come up with how much startup capital you need. You may even have sourced it already, through loans, a bank, business angels, or friends. No matter where your funds come from, the investor will want to know you take care of every cent.
The first step is to ensure you don’t overspend in your infancy. It’s easy to want to start with a bang, but your eagerness could overstretch you, and if your startup capital runs out, you may not be so lucky in attaining the second round of funding. To put it frankly, you could go bust.
Therefore, the savvy entrepreneur will seek ways to be prudent during the early months and years. When your business begins generating cash on its own two feet, then you can start loosening the purse strings to leverage your revenues.
What Can Entrepreneurs Do to Save Money?
There are three key areas a startup entrepreneur can study and seize opportunities to save significant amounts of cash.
1. Business Premises
For those starting on their own, as a one-person operation, then working from home is the ideal solution. If you do not need to have customers visiting you, then working from your home office or even at the kitchen table will save you a small fortune.
However, many startups need more than one person on board from the beginning. If that’s you, you cannot expect your people to come and work in your kitchen with you. So, you must consider getting an office. As you’ll soon discover, office costs are enormous and will become one of your most significant early expenses.
In Chicago, for example, renting an office can be as high as $50 per square foot each year. That may not sound much, but every worker deserves 150 sq ft of space. That’s $7,500 a year per person. The costs soon mount up.
The alternative is to consider coworking office space to save on office costs. A hot desk pass might cost only $300 per month for each person, a considerable saving. Further, you and your team will be working alongside other, likeminded, go-ahead individuals. There is plenty of collaboration, networking, and seminars as part of the package. You’ll also have a fully serviced office with a reception for your mail, kitchen, free refreshments, printing, Wifi, and more.
Alongside the cost of premises, your staffing is likely to be the most expensive way to get through your startup capital. You might think you need to hire a full-time marketer, office manager/bookkeeper/salesperson straight away. But you’ll have a fat bottom line cost of monthly salaries plus taxes. Not to mention unraveling all the red tape that comes with employing someone.
If possible, it’s far better to use freelancers for all your work needs while you are just starting. You’ll have no huge salary overheads, and you need only hire someone when you need them, on a job-by-job basis.
The gig economy is buoyant in the US, helped by the modern digital era, where communications mean so many people can work remotely. In the US, it’s thought that 36% of workers join the gig economy for their primary or secondary jobs. If you need a writer or designer, for example, Fiverr is an excellent resource.
3. Cash Flow
If we’re talking about ways of saving money, cash flow might seem an odd choice. We mean ensuring your positive cash flow is always as high and steady as it can be. As you set out on your business journey, set out clear invoicing terms from the start. Be clear if you expect payment in 14 days, send reminders, and be strict (while also being fair).
On the flip side, negotiate the best terms you can on every output: bills, services, suppliers, finance repayments. If possible, try to extend payment terms to something like 60 days, giving you more flexibility.
Another consideration should you be looking to improve your cash flow situation is seeking credit. While you must be careful not to run up effective debts by getting supplies on credit, this is a way of managing your cash flow by building out repayments over a longer period.
Cash flow is so important to the success or otherwise of your business. There is no point in seeing an uptick in your paper revenues, taking on new clients, and winning more jobs, if that money isn’t making it into your account on a regular basis. Because when a hefty bill lands on your desk, perhaps a tax demand or you must pay for a big print job upfront, you need the funds to pay it.
Without those funds in place, your business could go under – all because you had not managed your cash flow well.
Look After the Money and the Money Will Look After You
It’s a common saying, but it is so true for entrepreneurs looking to get through those difficult early years. With all your finances under control, you can focus on your business, providing the best product or service.
There really is no better way to maximize your chances of business success.