The first year of your startup will be your toughest as a business owner. That’s because almost 70% of start-ups fail within their first year of operation. That’s because most new companies just don’t have the capital to sustain the losses incurred in the first year.
Survival comes down to having the will and determination to weather the storm. It also helps if you have sufficient capital to hold you over. Very rarely do new businesses become cash cows overnight – most have to go through a period of breaking even or being barely profitable.
But if you want to be part of that 30% that survive the first year, do the following:
Plan Your Budget In Advance
It’s very important to plan your first year’s budget before launching your start-up. This means factoring in every possible overhead and expense. Here are some of the costs you’ll need to consider:
- Entertainment Budget (for clients)
- Postage and Courier Costs
- Your Take Home Pay (you may need to go without pay for months)
- Transportation Expenses
- Salaries for Employees
After compiling your expenses, it’s good to have another business owner look over your budget to check for anything you may have left out. You’ll also need to calculate a stop loss period, which is how much your business can afford to lose before it’s wise to shut down.
Start Building Capital a Year In Advance
Most startups will run at a loss for the first 6 to 8 months of operation. But you’ll need to save up more than 6 to 8 months of daily operating expenses. You’ll also need to save up additional capital to cover emergency costs, especially if you don’t have insurance.
Not only that, some startups take 6 months to break even, but might take a sharp loss a few months later. So how much should capital should you save up? You’ll need to stockpile an amount equal to 12 to 18 months worth of monthly operating expenses before you start your business.
Spend On Necessities
Running a business can turn you into a thrifty spender (if you aren’t already one). You might even be prudent to the extent that you’d actually hold back paying expenses that might actually benefit your company.
This could mean spending on a good location, website, or equipment. So when deciding on what to spend on, make sure you don’t’ skimp out on the essentials – otherwise you could end up setting your business up for failure by being too frugal for your own good.
Strategize Your Client Meetings
Meeting and building relationships with clients is a necessity for many businesses. So instead of meeting at high-end cafes for lunch or dinner, take your potential customers out for coffee instead. Not only will you save more money, but you’ll be able to take advantage of frequent customer discounts and other perks as well.
Keep strategies like this in mind when you’re thinking about how to save money without sacrificing the need to entertain customers.
Synergize Your Finances
Evaluating how your business can contribute to your personal finances give you additional sources of income. For example, if you use your cashback credit card as a company card, you can turn the thousands you spend monthly into an additional $50 – $600+ dollars in cashback rewards.
Also, if you’re single and want to save even more each month, you can also use your office as a residence.