5 Things to Consider When Starting a Business
By Space Coast Daily // November 10, 2021
The digital age has leveled the playing field in business. Marketing tools in social media give small and medium enterprises a budget-friendly advertising option aside from the traditional outdoor, TV and radio ads. These budding businesses can stretch their cash flow for their first few months of operation, thanks to these alternative marketing methods.
It’s no wonder that more and more neophyte entrepreneurs are emboldened to establish their own businesses. However, not all of them are destined to succeed. Statistics from a 2021 Report by Failory indicate that a staggering 20% of startups in the United States fail within a year after incorporation.
The report cites various reasons for this failure, including finances. 16% of startups end up closing shop even after 5 years because of difficulties sustaining positive cash flow and working capital cycle. Other reasons include lack of marketing, problems in manpower and failure to invest in necessary technology.
Succeeding in business requires preparation, and knowledge of the concerns that affect startups. Take note of these 5 details if you’re planning to start your own business in the future.
Small businesses need to think about squeezing every penny from its gross revenue to pay for as many expenses as possible. This means that you should not consider buying equipment, commercial properties and other assets for cash. Financing is always the best option for these purchases.
Financing means debt, but, for businessmen, debt is not always bad. For example, you want to purchase a bulldozer worth $80,000. You’re thinking about purchasing it for cash. That’s $80,000 from your cash flow or your cash reserves. You’ve crippled your cash flow by a significant amount if you go through this scenario.
With financing, however, you can stretch the repayments so you pay less every month. This leaves you more cash to pay for other expenses. Long-term financing can cover at least 5 years and up to 10 years. A restaurateur who buys a 4-burner oven for $1,600 will only pay $28 a month for 5 years if he purchases it through restaurant equipment financing with 5% interest.
There are many forms of financing available for small businesses. You can, for example, earn money ahead of your invoices through invoice factoring with no credit check. You can also liquidate your inventory early through inventory financing.
Cash flow describes the flow of money from your customers to your business, and from your business to third parties that you have obligations with. You can glean detailed information on how your cash flows within and outside your company by checking your income statements and balance sheets.
It is your responsibility as an entrepreneur to regularly monitor your cash flow. You must always strive to keep cash flows positive. A positive cash flow means that you have enough cash on hand to tide you through unexpected scenarios. A negative cash flow, on the other hand, means that you’re spending more than you’re earning. You’d need to correct that as soon as possible.
Businesses exist to answer a specific customer problem. For instance, a search engine optimization company exists to provide online marketing and website optimization services for other businesses. You must identify that need you want to provide for, and decide what solution you can provide that your competitor has not yet offered.
This is your unique selling point. All of your marketing will revolve around this idea. You cannot go into business without a unique selling point, and you can only determine that through careful business planning. Business planning also allows you to brainstorm with your partners what steps you need to take and what expenses you’re expecting when you launch the venture.
Be sure to document all of those in a business plan. The business plan is necessary when incorporating your company, and when approaching institutions for financing.
If business planning provides the backbone of your company, marketing gives it the lifeblood that keeps the cash flowing in. It’s not enough that you have a unique selling point over your competitors. You have to let the world know, even your competition, that you have something new to offer the market. Only a successful marketing campaign will bring your offering to the attention of your potential customers.
While most entrepreneurs understand the importance of advertising, only a few realize the need to allocate a specific part of your budget for it. For example, cash flow constraints force budding businesses to set aside less than 5% of their revenues for marketing.
5% is actually less than what the Small Business Administration suggests. According to the SBA, you need to channel at least 5% and up to 8% of your gross income for advertising.
Theoretically, the more money you spend on advertising, the more likely it is that customers will find your new business. Of course, you have to be creative and innovative with your marketing materials so you can truly capture your market’s attention.
Last but not least, entrepreneurs must make sure to recruit the best talents available for the core team. These are the people who will be managing the business with you through its infancy, and through its first five years. Thus, the people you hire to help you get the business off the ground must have the qualities like exceptional talent, a sense of commitment, and pleasing personality.
It takes a lot of time and effort to find the best talent to crew your business. Fortunately, you have websites that help link employers and prospective employees together. These websites are free to join, and can connect you with thousands of ideal candidates.
Alternatively, you can also approach staffing agencies to vet your applicants for you. For a fee, they’ll take on the tasks of searching and interviewing potential employees for you.
The Bottom Line
Starting a business is a ticket to financial independence. However, as statistics show, not all businesses are meant to get to the top.
Those companies that do get to the top are the ones that have exercised due diligence, undertook careful business planning, invested considerably in marketing and spent time in finding top talent for their core team. These five tasks are the most essential of your concerns when you finally decide to get your business idea off the ground.