You won’t be able to eliminate the risks, but you can limit them.
Having a startup business can be the thrill of your professional life. How cool is it to make something out of nothing, to create something that did not exist before? Then to experience the excitement that comes when that creation provides you with a respectable income. There’s no feeling like it on earth, in my opinion.
If you want to start your own business, you need to invest time thinking about risk and how to manage it. I mean, how do you know your startup will succeed? You don’t. Who will pay money for your idea? Will your startup be sustainable over the long term? There are loads of questions you must answer. But perhaps one of the most significant questions is how you will fund it? There are many ways to approach funding your startup, and each comes with specific risks. You won’t be able to eliminate the risks, but you can limit them.
You Can Limit The Risk
Here are my suggestions to limit the risks in funding your startup:
1. Do Your Homework.
Learn all you can about your prospective business; its market, potential customers, trends, conservative revenue and cost estimates, competitors — everything you can. Do thorough research. Talk to people in the business. Please don’t skip this step and jump into the next steps. This step will inform your decisions and your chances of success.
2. Use What You’ve Already Got
I’ve been told that when you go to a casino to gamble, only take the amount of money you can afford to lose. I think that’s excellent advice for a startup business. Use your own money, and just use what you can afford to lose. If everything goes bust in your startup, you’ll be upset, but not broke. You’ll also be wiser and perhaps better prepared, should you decide to take a second stab at it.
Use your own tools, computers, vehicles and other equipment at first. Later when the revenue picture is much healthier, begin acquiring what you need. But again, make sure you need it. Also, think carefully about leasing versus owning your equipment. There are many good financial and business reasons to lease. Talk to your accountant.
Leverage affordable and widely available services and technologies. These days you can get robust IT solutions for free or for minimal cost. You can also get various kinds of other services at a very low price. For example, you may not want to hire a full-time employee as your assistant when you can get essentially the same services virtually, on an as-needed basis, from many third-party providers.
Call in favors from friends and family. If you need the help, your friends and family might be willing to help you at no charge because they care about you. Nothing wrong with asking for some startup support from your personal network. I wouldn’t abuse this, but it can help you get started.
3. Conserve Your Cash — Cash Is King
Don’t buy anything for your startup until you need it. If you do need it, don’t hesitate to buy it. But make sure you need it. And be sure not to confuse needs with wants.
Ask your suppliers to give you favorable credit or payment terms. When you get paid by your client, use that money to pay your suppliers. This action will conserve your startup cash.
If you need to hire direct labor (these are people you can invoice your client for), don’t hire them as employees at first. Start by using them as independent contractors. Make sure they agree to the same conditions as your other suppliers; they get paid when you get paid, again conserving your cash. This can be a great strategy for the longer term, too but make sure you understand the IRS rules on the use of independent contractors versus employees.
Barter for products and services you might need. Offer to do something for a friend in exchange for the things you need. Again, this conserves your cash.
Sell off your unused personal stuff on eBay. You’ve probably got lots of things you don’t want or use. Sell it and use the cash for your startup.
4. Use Credit Sparingly, As A Last Resort
Use low or no interest credit lines or credit cards. Pay these off as soon as possible. Again, make sure you are getting what you need, not what you want.
The only kind of credit I like is credit used to help generate income. For example, if I get a contract from a client, I might need some equipment or other services to start work. Borrowing on a short-term basis to fund the contract start is a good use of credit.
Consider personal loans from friends and family instead of a bank or lending company. If things go wrong, your friends will likely give you more time and better treatment than a bank.
You may have noticed as you read my suggestions above, one common theme that kept coming up, again and again, is to conserve your cash– don’t buy something unless you need it, but make sure you need it. Also, be mindful of the difference between a need and want.
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