How to successfully manage your business start-up costs

Thu, Nov 2, 2017

Featured Post, Financial Advice

They say that a staggering 96% of all businesses fail within 10 years of their launch, and this is a daunting statistics that highlights the challenges facing entrepreneurs.

While businesses fail for all sort of personal reasons due to their fundamental nature and the market that they operate in, there are universal issues that are particularly troublesome. One of these is a lack of cash flow, which often arises when start-ups struggle to manage their operational costs and quickly become loss-making entities.

With this in mind, minimising start-up costs can provide your business with the very best chance of success, and help it to become one of the 4% that enjoy sustained success. Here are some steps to help you achieve this:

 

  • Recognise that everything has a cost base

 

This is an important starting point for entrepreneurs, who must recognise that each; individual facet of their venture has a cost base that will impact on their bottom line.

This knowledge alters your approach to key business challenges, as you begin to appraise every potential investment and measure its cost against an expected ROI. This even applies to recruitment and investment in people, as each employee has their own unique cost base that can be measured against their value and impacted by factors such as absenteeism.

Keep this in mind at all times, and try to ensure that you afford everything that exists within your business a clearly defined cost base.

 

  • Prioritise strategic costs

 

Not all business costs are created equal, as while some have a direct impact on the profitability of your venture others are less influential.

This is why businesses often distinguish between strategic and non-strategic costs, with the former including seminal marketing and sales disciplines that directly influence the profitability of specific products. The latter refer to operational costs, which can often be reduced without having a direct impact on the delivery of products or services.

By prioritising costs and defining them as either strategic or non-strategic, you can optimise your spend while also identifying the best areas in which to make savings.

 

  • Consider invoice financing to boost your cash flow

 

Whether you deliver a product or a service, you will need to spend money in order to meet and facilitate orders. This is where so many ventures fall down, as they quickly run out of cash and find themselves unable to grow or accept new work.

Product-oriented firms have always been able to negate this issue, of course, by securing advanced orders from retailers and using these to secure a bank loan. Nowadays, service-driven firms can leverage the similar concept of invoice financing, through which they sell their accounts receivable for completed work and are paid this amount in full.

Third-party investors are then repaid when the client settles their invoice, creating an agile and short-term cycle of debt that allows entrepreneurs to retain the equity in their form.

This should form part of the type of comprehensive cash flow management strategy listed here, as you look to optimise your level of working capital at any given time.

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