Navigating financial challenges in startups: Strategies for success
Running a startup can be a challenge. As exciting as it can be to have your own gig, there are also numerous obstacles that you will likely encounter along the way that could trip you up and prevent you from progressing as you should. Unfortunately, the number of startups that fail early is high; people are inspired by an idea but don’t have a realistic plan for how to put it into practice.
Fortunately, there are practical steps that you can take to avoid these pitfalls. If you take the time to research common challenges that startups face, you will find yourself in a much better position to navigate them. In this article, we will review four of these challenges and provide practical steps for dealing with them.
Top financial challenges that startup owners face
First of all, it bears clarifying what exactly a startup is. Startups are businesses that are based upon a single new product or service that founders want to bring into the market. It is because these ventures are new and untested that 70% of them do not make it past the first two years.
Therefore, these types of businesses require even more focus than other new businesses do to get off the ground successfully. While there are many challenges that you might encounter in your startup, we will look at some of the most common ones. These include creating manageable budgets, securing funding, managing cash flow, and building revenue.
Creating a budget that works
Creating a budget during the early phases of a startup can be tricky. You want to put aside enough money each month to have a safety net in case something goes wrong, but you don’t want to be so conservative that you refrain from spending on the things you need to grow.
When you put your budget together, think about both your short- and long-term goals. Some things to keep in mind when creating a budget include the following:
- Make your financial goals specific and measurable. If you have a goal for the number of new customers you want to bring in during a given month, figure out how much that would amount to in terms of added revenue.
- Give yourself a safety net. You never know when you will encounter unexpected problems that will suddenly cause you to lose money. Therefore, keep enough money aside so that you won’t fall apart if you fail to reach your goals during any given period.
- Be sure that you allocate a reasonable amount to marketing. The early phases of your startup are all about growth, of course, so it is critical that you pay close attention to your marketing efforts. Your marketing budget should take into consideration all of the factors that will contribute to your startup’s growth, including projected revenue, salary costs, subscription costs, cost per campaign, etc.
Securing the right funding
In order to carry out any of your startup plans, you will first need to secure the right funding. There are different ways that you can do this. One of the more popular options is getting business startup loans. The right loan will provide you with the capital that you need to get started at flexible interest rates, and allow for a flexible repayment schedule.
Another advantage of getting a startup loan is that the requirements for qualification are less strict than they are for traditional loans. Therefore, if you don’t have the credit history that banks usually require for most loans, you might still be eligible for a startup loan.
Venture capital or finding an angel investor is also worth considering. Startups sometimes seek venture capital from individuals or firms that have a particular interest in the product or service they are launching. Venture capital providers generally do not charge interest, but rather ask for a percentage of the profits in return.
You might also seek out an angel investor. Angel investors are usually individuals, and they are not necessarily people whose main business is in giving loans. Rather, they are people who have a personal, vested interest in a certain cause or idea and want to support it. In exchange for funds, angel investors usually ask for an equity share in the company they lend to.
Managing cash flow
Once you have your initial funding and budget in order, you will face the challenge of managing your money on a regular basis. In order to navigate the daily struggles of dealing with cash flow issues, there are several things you should keep in mind:
- Cover all of your fixed and variable costs. Both regular monthly costs, such as rent and utilities, as well as variable costs such as supplies, commissions, etc. should be accounted for.
- Be sure to account for every expense made, no matter how small. Even if you use the company money for lunch, be sure to record it. Little things can add up quickly.
- Make sure that you pay bills and service charges on time. If you wait on making the necessary payments, the interest can add up very quickly, and this will further complicate your situation.
- Monitor your cash flow on a monthly or even bi-weekly basis and note any changes that occur from month to month to create a cash flow statement. Note any cash flow gaps that you see. This will help you adjust your budget projections accordingly.
Obviously, your main goal in creating your startup will be to make a profit. This is particularly important during the early period as you are still figuring out how to manage expenses, etc. By focusing on your larger goal of building revenue, you will ensure that you can meet your needs and be able to continue growing.
Keeping all of the above-mentioned points in mind – budgeting, financing, cash flow management – as well as creating an effective sales strategy are the keys to building revenue. When you start building revenue, you will be able to start thinking about reinvesting some of your money and grow even further in new directions. In addition, when potential partners see that your business is growing, they will be more likely to want to partner with you.
Creating a startup is always a major challenge. Trying to introduce a new product or service into the market involves a great deal of risk. However, if you go about the process systematically, create budgets for yourself, secure the right funding, pay attention to your cash flow, and focus on building revenue, you will have a much better chance of succeeding. Always keep an eye out for unexpected obstacles and be prepared to manage them; this will help keep you afloat.