Having a business idea is somewhat easy, in fact, most people have business ideas. But getting the idea out of your head and turning it into a profitable venture is not for the faint-hearted. It requires focus, grit, persistence, and self-discipline. Most of all, you need funding.
Applying for a startup business loan may not always be successful, it largely depends on your credit score and for most people, a student loan may hold them back.
An investor, however, can help finance your venture. How you spend this money can lead to a long-term engagement or kill their confidence in your startup.
An investor funds your business venture with the expectation of measurable growth. This growth is only achievable through proper management and channeling of the funds.
Here is how you can go about it.
Do Adequate Market Research
An entrepreneur’s worst nightmare is to create a product that does not sell. You end up not just wasting the investor’s money, but your precious time as well. You can avoid this scenario by carrying out adequate research before getting into production.
It is one thing to have a business idea, and it’s another thing to create a solution that meets the needs of the consumers. Market research helps you understand the reasons the target market will want to buy a product. You can then use this insight when building your product or service.
Market research can take two forms:
Primary research – This is where you gather information directly from a sample of your target market through telephone interviews, surveys, and online polls.
Secondary research – This involves using readily available information such as online market reports about the industry and articles.
You can use both methods of research or select one, and design your product based on the findings.
Budget the Money
One hundred thousand dollars may sound like a lot of money, but if you don’t plan for it, it can be gone in a jiffy with nothing to show for it. And you are likely to lose the investor.
Create a comprehensive and reasonable budget. Ensure every purchase contributes to the growth of the company with a quick ROI (Return on Investment).
Here are some of the things you need to focus on:
Sales and Marketing – You need to put your company out there and let people know what it is offering, this is the only way to start earning revenue. Invest in an experienced social media marketer, copywriter, and a well-designed website that boosts conversion.
Capital Expenditures – This involves planning for office furniture, equipment, software and servers needed to run the company. As much as you are trying to save some money, you need to set aside funds to buy assets that can serve the company for long, without the need for frequent replacement and repairs.
Second-hand items are great for startups, they are sure to help you save some money as long as they are of good quality.
Human Capital – The people you hire can help build or destroy your company. You need to work with people who have initiative, a growth mindset, are skilled, and can adapt your dream. Plan how many employees you will have – as few as you can without overworking them. Compensate these employees well and offer great benefits to boost their productivity.
Utilities – Set aside funds to cater for your utilities until the business operations are able to finance these bills. Utilities include water, internet service, electricity, and phone services. Encourage your employees to avoid wastage. Something as simple as switching lights off when not needed can reduce your electricity bill significantly.
Save As much As You Can
When you are relying on investor’s money, you need to try and get much done with as little as possible. Here are a few things you can do to keep expenses down.
Use contract employees – You are just starting out, and the company may not be busy yet. Where you can, hire people on need-basis or use freelancers such as web-developers and content writers. It can save you a lot in terms of salaries.
Automate tasks – Rather than hire someone, use software to work on repetitive tasks such as receipting, invoicing, and reporting. An accounting software, for instance, can come in handy.
Shared office space – You don’t have to rent or lease an entire office during the initial years of your company. Coworking spaces are available in almost every town making it easier for startups to save on rent.
Negotiate for Discounts – There are so many suppliers willing to offer discounts for bulk or regular purchases, if only you asked.
Adopt BYOD – The Bring Your Own Device policy involves allowing your employees to use their personal devices such as laptops, tablets, and phones to access company information and software. It reduces the cost of buying new company devices.
Avoid Unpaid Invoices from Crippling Your Startup
Poor credit management is the major reason behind unpaid invoices that eat into your profits. To avoid this:
Avoid disputed invoices – Delivering the wrong or damaged goods, failing to deliver according to the terms of agreement with your customer, or sending the wrong invoice all result in delayed payments which can affect your cash flow.
Set up a collection policy – Some customers take advantage of a disorganized supplier to delay payments. Have a routine such as a date to do polite reminders before the payment is due.
Check your customer’s reputation – A sale is only beneficial if you receive payment for it. If you are not sure about a customer, check their reputation with other suppliers before delivering the goods, or use the payment on delivery method.
Be conversant with your customer’s payment process – To quicken the invoice payment, ensure that your invoices fit with the customer’s way of working. If possible, introduce yourself to the person responsible for payments and they can help you understand how to get payments done faster.
Employ Proper Financial Management
Financial management is the practice of controlling and monitoring the business’s financial resources in order to meet the organization’s goals and objectives. Most startups fail due to lack of finances and having a poor business credit score might make things worse since such businesses are unworthy of most of the nation 21 quick cash loans. Not that they did not have funds, but they mismanaged it.
Here is how to avoid falling into the same trap.
Have an Expense Management Policy
Your employees need guidance on what is acceptable as an expense and what’s not. Be strict. An effective expense management policy keeps them from misusing the company’s money.
Allocate Money to Each Overhead
As much as there is a need to control your employees’ spending, they need to have the freedom to spend when there is a need. To achieve a balance, allocate money to each expense such as travel expenditures. Your employees can then spend when required but within set limits.
Analyze your spending regularly
Check where every cent is going. Is there any way you can make some savings? For instance, if too much money is used on cabs, is it more economical to lease a company car? Do the math.
Separate Company Money and Personal Finances
This is one place most entrepreneurs go wrong. The investment money is not your money; it’s the company’s money. Don’t use it for personal expenses, and most importantly, don’t put it in your personal account. Open a company account and pay yourself a salary as an employee.
Save for a Rainy Day
It’s good to be optimistic, but then again, things happen. Unexpected losses and expenses can throw you off your game and shut the business down. Just as you probably have an emergency account for yourself, set one for the business.
Office expenses can easily get out of hand if you are not careful. Buying fancy office décor may appear as a harmless move, but it can easily throw you off balance. Before making any purchase, ensure it has a direct positive effect on productivity.
Use Prepaid Cards
Rather than have a petty cash stash, use prepaid cards. They make it easier to identify employees who are misusing money or overspending. It also prevents unaccounted losses and account discrepancies common with petty cash.
Revisit Your Budget Regularly
Check your budget from time to time and compare it to your spending. Correct any deviation, analyze the causes and put in measures to prevent it in the future.
Building a startup from the ground is not easy, but it’s possible. Be careful with investors’ money. Ensure every penny used contributes to the growth of the business.
By using these tips, you can build a successful startup that generates profits for the company and good returns for your investors. And you can be sure that getting them to fund your business expansion will be a piece of cake.