Keeping Your New Business Alive
A lot of new businesses fail very quickly. More often than not, this is because they run out of money as a result of bad spending decisions. When you first start out your capital is limited and you need it to last until the business starts bringing in revenue. There are ways that you can ensure you don’t run out of money before you become profitable, and keep your new business alive long enough to be a success. Here are a few tips that you can use to manage cash flow.
Know When You Will Break Even
Once you break even, you can cover the running costs of the business with the money that you are bringing in. You no longer have to rely on the lump sum of cash that you started with. Obviously you won’t be able to predict it exactly, but using earnings forecasts, you can get a pretty good idea of when you will break even. This will tell you how long you need your start-up capital to last, so you don’t end up spending it too fast at the beginning and running out before you’ve started making profit.
Cash Flow Management
If you do manage to survive until you break even, or even become profitable, that doesn’t mean you can spend what you like. You are still in dangerous territory at this point so don’t make the mistake of thinking that just because you made a bit of profit last month, you can increase your spending. Keeping your running costs consistent at this point will mean seeing an increase in profit. It is a good idea to keep a constant check on your finances to make sure that spending is within a reasonable limit.
Collecting on Invoices
Before you can start to think about any of this, you need to bring in some money. Hopefully you have some clients, but you need to make sure that they pay you. Make all of your invoices ‘due immediately’ so you aren’t left waiting months to recoup the investments you’ve made. If for some reason, customers are unable to pay immediately, consider cashflow finance services, that can get you most of the money upfront. You could also try offering discounts for early payment, to encourage customers to settle invoices as quickly as possible.
Have a reserve
Even if you are doing everything right, you can still get into trouble if you are not prepared for the unexpected. There are plenty of things that could go wrong, and you might not have any control over it. For example, if the running costs of your business increase due to market fluctuations, you might be left without enough cash to keep going. In order to avoid going under in these circumstances, always keep a cash reserve that is only to be used in emergencies.
When you are first starting out, you need to be careful about hiring staff. You don’t want to spend all of your money on a huge team that you don’t really need, so just hire the people that you actually need at this stage. It is also best to hire a few, more experienced employees. You may have to pay them a bit more but in the long run, they will be more valuable than lots of inexperienced staff members who will struggle to help you keep the business afloat.
Hopefully, using these tips, you can keep your business alive long enough to start making a profit.