Succeeding with a Start-up Part 2: Knowing your Financial Capacity

In Part 1 of the succeeding with a Start-up series we focused on your story.  In Part 2 we discuss your financial capacity.

What is your financial capacity?

One of the pitfalls of start-ups is that they start putting their money into so many things “for the good of the business” and end up stretching their finances too thin. Later on, when the business encounters a problem like, say, difficulties in billings or revenue, the business suddenly goes in the red causing amazing amounts of stress among other problems. Why does this happen? It’s because some business owners just don’t seem to understand their financial capacity preventing them from answering important questions such as “How much should I keep as an emergency fund?”, “How much should I allot for equipment?”, and “How do I minimize my fixed costs without negatively affecting the quality of my product / service?”

What things do you need?  What things do you want?

Start by looking into the nature of your business and look at what you need to do to your operations. From there, identify what your necessary expenses are, what are nice-to-haves, and what expenses are just complete wastes of money. For example, if you are a start-up upscale restaurant, nice plates and utensils would probably be a necessary expense but do you really need a Macbook Air as the computer you’ll use to keep track of inventory rather than just getting an affordable PC? This may sound absurd to some but, believe me, situations like these do happen. Some entrepreneurs just get so excited for their business that they end up overspending on that “one thing” that, later on, becomes “a lot of things”.

Can you minimize your fixed costs?

One of the things that will really help is to minimize your fixed costs. These are things like RENT, SALARIES, etc. Be sure to ask yourself if you actually need a nice office right from the start as compared to starting small and whether it’s sustainable for you to hire X amount of people rather than starting with a select few who can do multiple roles for now.

Plan your financial growth

Lastly, set financial milestones. Create “levels” of financial growth and assign things to each level that you will need to spend on. For example, at level 1, try to aim for the bare minimum things you need to ensure operations go smooth. At level 2, you can now hire X additional personnel. At level 3, you can start investing into moving to a better office… and so on.  Just make sure to do the necessary assessments to your business so you can make the proper decisions. You may also want the help of an expert for this like say a financial or business consultant.

There are many ways to minimize your expenses but most important is that you know what’s coming in and what’s going out.

About Brightblue Transition Solutions

Located on Vancouver’s North Shore we are the premier business broker in the lower mainland, contact us if you need any help buying or selling a business in the greater Vancouver or lower mainland areas.