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Congratulations! You have been approved for funding. So, what is next? You might have an overwhelming desire to spend it on whatever you want but it is important that you are responsible with your money and following a spending plan that you laid out in your business plan if your business is to survive its critical early years.
The most important decisions a business faces at this crucial stage is how to spend your startup funds. Fiscal responsibility is not something leaders are born with but there are some shortcuts in the capital spending curve that a business owner should follow.
Do Not Go on an Unplanned Buying Spree
Once your funds go through, it can be irresistible to go on a buying spree and purchase things you need for your business such as high-tech equipment to printers. You must fight the urge to overspend on things and only buy what you truly need to get started.
Take a moment and step back to review your business plan that you worked on. The details of those pages will remind you of the spending strategy you outlined to get your business off the ground. Look at your cash flow forecast so that you are spending accordingly.
Only about 78 percent of startup businesses survive in the first year according to the Small Business Administration. Keep this information in mind because it will help you realize that you should spend capital wisely and make sure your business finds success.
Areas to Avoid Spending Funds:
Before you make the following purchases, go back and review your business plan and determine if they fit in the parameters you set for your budget and financing.
- Fancy furniture and office space
- Expensive equipment
- Overpriced clothing
- Expensive business trips and lunches
- Pricey printing costs
Ask yourself if these are essential for your business. If you are looking to be more cost-effective, try other options. Instead of buying expensive printers and copy machines, take advantage of print services at a local library. If you need a location for customers to visit, look for a spot that has a smaller price tag. As your business grows and starts to bring in revenue you can always upgrade your items into something better.
Create a List
One of the most common mistakes a business can make is operating with insufficient funds or poor fiscal management overall. To combat this error, try to create list of must have items that your business cannot function without.
Some of the following expenses should be budgeted for your small business during the first year:
- A competent accountant or CFO
- Legal advice/tech support
- Customer service/branding
Keep in mind that paying for quality in these areas are essential, but you do not need to pay top dollar to have them.
Evaluate Technology Needs
Really assess your technology needs when you are in the startup level of your business. Measure the purchases against your actual needs to run your business because there a lot of software’s and upgrades available.
Spending money unnecessarily on computer systems and other hardware proves to be a big mistake for companies. While being able to answer emails on a large tablet may be more convenient, it should be done with whatever you already have such as your smartphone or other device.
It is good to spend on technology that priorities future marketing and sales campaign successes is a good idea. However, you must be financially responsible about it.
Invest in Small Team
A great time is the backbone of any business. Most businesses require one or two essential members on staff to start and some need one other than just the business owner.
Outsourcing to experts or knowledge friends and family frees up capital that would normally go towards salaries and can provide a buffer for any unexpected expenses. It might be essential to hire more people to the team as the company grows but remember to only do it if it makes financial sense to do so.
Create a Backup Plan
It is the goal of any new company to reach the break-even point in the first fiscal year of the business. This measure shows that profits are equal to expenses and up-front capital investment.
You should always be prepared when allocating funding and profits. If the company does not get to break-even by the end of the year, having access to funds or savings can be critical. Some corporations do not breakeven until their second or third year of operation so be prepared.
Remember that your business plan is your blueprint and your path to being profitable. You will be able to figure out what you can afford to take on more debt for the long term of your business. Your business plan serves as a financial guide based on your own data and profit and loss projections.
The Bottom Line
Obtaining funding for your business is very exciting, but you should spend wisely and be prepared for the unexpected. Making a plan on how you are going to spend your funds is going to help avoid you making unnecessary purchases. Also, your business plan comes in handy so that you can stay on track with your finances for your small business.
