Startups have to be careful with money. Spend just a little too much, and all of a sudden, VCs start pulling out funding, and your idea is toast.
Investors are like deer. The slightest inkling of rustling in the trees up ahead, and they scram.
Therefore, saving money is a big deal for startup leaders, but how do you do it?
Moving back home with your parents might sound like the last thing you want to do. But it can actually massively free you up to pursue riskier ideas. Not being locked into a rental agreement or mortgage changes your perception of money and makes it more likely that you’ll succeed. You’re not so stressed, and you can build up the capital you need fast, instead of waiting for years.
Keep Your Day Job For Now
Keeping your day job and running a startup is tough. You have to be committed to make it work. The effort it requires is extraordinary.
Yet, if you look at most entrepreneurs, you find that they’re strikingly reluctant to give up their regular source of income. It’s vital for helping them keep their necks above water financially during the first few months before the bigger contracts start rolling in.
Startups don’t have to fund everything they do out of pocket. Instead, they can piggyback on the financial resources of other companies. For instance, many entrepreneurs look for opportunities to appear alongside complementary companies at business events without paying full attendance fees.
Others find that they can make significant savings on LTL freight shipping by sharing trucks with other brands. Firms only pay for the space they use.
Finally, some startups slash their marketing costs by using another brand to promote their products.
Bartering might sound old fashioned, but it can provide substantial rewards and keep your cash flow healthy. If you know that you can offer a quick-and-easy service to another firm and get something more valuable in return, go for it. Opportunities like these are golden, and, often, both parties wind up winning. What’s more, you can use it to protect your cash pile, making you appear better to investors.
What’s the main reason businesses fail? As any accountant will tell you, it’s not the lack of viability. Instead, it’s the lack of cash.
There’s a subtle but important distinction here. Economists teach that businesses live and die by their ability to make a profit. If they don’t create more money than they consume, they ultimately go out of business.
In a sense, that’s true: eventually, companies will fail if they continue losing money, year after year.
But in practice, the biggest issue isn’t profitability – it’s cash flow. Companies simply run out of money in the bank to pay their suppliers and staff, even if their accounts receivable is full. And that’s when they run into trouble.
Keep an eye on your cash flow and plan big expenses months in advance.