Not only am I a successful start-up entrepreneur, my expertise lies in the area of helping small businesses across the nation to succeed in their business endeavors by keeping an eye on their financial performance from the top line to the bottom line.
Young entrepreneurs may be tempted to use their own credit to cover expenses when starting a business. You need to be very careful and understand the risk involved in that decision! Most businesses are not successful, and especially your first few ventures will have a low possibility of long term success. But the impact on your credit will stay with you for a very long time. Keep your credit for the business you start that outlasts the initial ‘proof of concept’ stage and is at least producing revenue. Until then, bootstrap it or find like-minded people to invest in you.
Don’t buy a bunch of inventory. Inventory intensive businesses carry a lot of risk. You have to spend to purchase the inventory, the less you order the more it costs per unit, and you have to consider the cost of lost opportunities because your precious capital is sitting around in the form of inventory gathering dust. Even though your margins may be lower, it is recommended that you produce as ordered or limit your inventory purchases to current orders on hand plus 100%. That way, at a 100% markup, if you never get another order, you won’t be out-of-pocket once you sell that inventory – unless it never sells and you have to discount it or give it to charity.
Reinvest in your business. A start-up business is like a baby; you have to feed it, nurture it, stay up all night, give it your all and you hope it grows up and takes very good care of you. If you take all of your profits and spend them on fancy things, you run the risk of starving the baby! Protect your capital and spend it in ways that will generate more capital. Use your entrepreneurial negotiating skills to convince your producers to lower their prices to you in anticipation of your future growth. Don’t hire staff members that cannot help you generate more revenue or save on costs. Don’t rent an office unless you absolutely must – keep it virtual. Rely on associate relationships and interns to do your evangelizing. Use free or low cost platforms for website, CRM, social media, and other tech and marketing needs. The rule of thumb is – don’t spend money unless it will make you money.
Keep an eye on the numbers. When you first start a business it is difficult to predict what your revenue and costs will be, but it is still important to make a forecast and cross reference your budgeted numbers with actual performance. Don’t fib to yourself about the potential, create forecasting that is reasonable and achievable so you can use it for goal setting. As soon as you have reached a revenue phase, you should begin measuring critical KPIs (key performance indicators) so you can learn the percentages and flow that represent your businesses cycle. A few important things to know about your business are: margins, cost of client acquisition, attrition rate, debt to income ratio, revenue growth rate month over month, and monthly overhead total.
The entrepreneurial spirit is one of persistence and confidence. Stay true to the vision and carry it out. If the vision is getting blurry, stop and recalibrate. Decisions made out of desperation lack good judgement. If you can’t get to proof of concept, scratch it. Your experience will serve you in a later endeavor. Be smart, listen to your instincts, and know when to fold.
Success is right around the corner!