Are you looking to start your business? Did you just start a business?
If so, this is a thrilling and rewarding time in your life. You get to watch your dreams come to fruition. No matter what your dream is, it is easy to overlook the critical groundwork for a successful business.
Brock Blake, the CEO of Lendio and a contributor for Forbes, lists and describes four financial keys that unsuccessful businesses miss when laying their groundwork.
Focus on Revenue First
“To get any startup off the ground, there’s a laundry list of things to do. But sometimes those details can distract you from the most important goal: driving revenue. Revenue cures most mistakes, especially early on. It helps you buy time to figure out the other aspects of running a successful business. And the best way to drive revenue is by understanding your customers; this means you have to get out of the office and solicit real feedback.
In my opinion, the only way to know if your product or service is truly fulfilling a need is to find out if people are willing to spend money on it. Too often, we limit feedback on our ideas by only soliciting opinions from friends and family. Unfortunately, most of the time they tell us what they think we want to hear. I had to learn this the hard way.”
Be a Diligent Bookkeeper
“The number one reason more than half of all businesses fail in the first five years: cash flow problems. Too often, business owners round up the necessary funds to start a business, but fail to set aside enough to stay in business. Which means at some point, they need more cash.
More than two-thirds of small businesses that faced financial challenges in the last 12 months turned to personal funds to cover the shortfall. And more than half of them used a credit card. That’s a really high number of business owners dipping into personal reserves or taking out personal loans to cover business expenses and so far in 2019, the trend hasn’t changed. They do this because usually, the most convenient place to get cash is from your personal savings or personal credit cards—I know this since I’ve tapped both during my career.
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To further prevent those cash flow woes, learn to carefully track your accounting, cash flow, loan and credit information in real time. … Fintech providers are now beginning to offer machine learning-enabled solutions for everything from access to capital to cash flow forecasting that are useful to even the smallest of businesses. From both a survival and a scalability standpoint, I believe this type of tech adoption is critical for small businesses.”
Don’t Go It Alone
Blake suggests hiring a lawyer and/or a CPA, as well as finding a mentor to help with your new business:
“When budgeting your startup costs, plan on hiring professionals [lawyer, CPA, etc.]. This will not only get your business off the ground on the right footing, but it will also allow you to create relationships you can lean on throughout the growth stages of your startup. There are a few things my co-founder and I did in the early stages of building Lendio that we really regret now. We were too cheap to hire the right accountants or attorneys to help with discussions around equity, stock options and loans. We were naive at the time and hoping to cut costs—but some of the decisions we’ve made as a result will be more costly in the long run.
In addition to a good attorney or CPA, find a good mentor. Here in Utah, we are fortunate to have a very supportive, multi-generational entrepreneurial community. Some of the most successful companies have relied heavily on mentors who are willing to lend their perspective and expertise, sometimes at no up-front cost or even pro bono. There are also several free and subscription-based services to help you find a mentor.”
Establish Business Credit
“Once you’ve got the business off the ground and start to see positive cash flow, you should turn your attention to establishing business credit. Then, when the time comes to get a business loan, lenders will have more than just your personal credit to work with, and they’ll be much more likely to approve you for the funds you seek.”
Some easy ways to complete this is by opening a bank account in your business’ name, making sure you have a Federal Tax Identification Number (EIN), and maintaining a line of credit with suppliers and vendors.
“My advice has always been, when starting a business, plan on it taking twice as long and costing twice as much as you think it will. Yes, more than half of all businesses fail in the first five years, but that doesn’t mean your startup is doomed.”
By following Blake’s guidelines, you can significantly increase your chances of being a successful business!
