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You’ve Got Funding: 5 Things to Do With the Money Right Away
Your funding has been approved with the bank or granted via investors—congratulations!
Now, the fun part can begin: the spending. Resist the urge to spend to your heart’s content and follow the spending plan in your business plan for the critical early years of your business.
Spending your startup funds is crucial, but fiscal responsibility is often learned through trial and error. Looking for shortcuts in the capital spending learning curve? Here are five do’s and don’ts every business owner should follow.
1. Don’t go on an (unplanned) buying spree
It can be irresistible, once funding comes through, to go on a buying spree for everything from company tech to office chairs. Fight these urges and only spend on what you truly need to get started.
Review the business plan you worked hard on. The details within those pages will remind you of the spending strategy to get your business off the ground. Look closely at your cash flow forecast so you can spend accordingly.
According to 2016 statistics published by the Small Business Administration (SBA), only about 78 percent of small business startups survive the first year, and only half make it to the five year point. It is imperative to spend wisely to ensure your business finds success.
Avoid spending funds on:
Before making the following purchases, determine if they fit in your budget and financing.
- Fancy office space and furniture
- Expensive equipment
- Unnecessarily overpriced clothing
- Pricey business trips and lunches
- Expensive printing costs
Are these essential to your business? To be cost-effective, try using a spare bedroom within your home as a makeshift office; instead of buying expensive copy machines and printers, take advantage of print services at a local library; in the event a suit is absolutely required to impress prospective clients, simply rent or borrow a smart blazer from a local tailor or a friend.
If you need a physical location for customers to visit, look for a creative spot with a smaller price tag. You can always upgrade these items as your business starts to bring in revenue.
2. Create a must-have list
One common mistake a failed business can make is operating with insufficient funds or poor fiscal management overall. To combat this, create a list of essential expenses your business cannot live without.
Here is a list of undeniably essential expenses most successful businesses should budget for during their first year:
- A competent CFO or accountant
- Legal advice/tech support
- Customer service/branding
You don’t need to pay top dollar for these items, but paying for quality in these areas is essential. For more info on must-haves, check out our new business owner checklist download.
3. Evaluate technology needs
Assess your technology needs for your startup. Measure these purchases against your actual needs to run your business.
Spending money unnecessarily on elaborate computer systems and hardware can be fatal for fledgling companies. While answering emails on a large tablet-sized screen may be convenient, it can be done just as easily on a smartphone you already own.
However, intelligent spending on technology that promotes future marketing and sales successes is always a good idea. In these decisions, financially responsible business owners are born and thrive.
4. Invest in minimal staff
The backbone of any great business is a strong support staff. Most businesses only require one or two essential members to start, and some need no one other than the owner.
Outsourcing to experts or knowledgeable friends and family at the beginning frees capital that would go toward salaries and can provide a buffer for unexpected expenses. Only hire new staff members if it makes financial sense to do so.
5. Create a backup plan
The goal of any new company is to reach at least the break-even point in the first fiscal year. This measures signifies that profits are equal to expenses and upfront capital.
When allocating profits and funding, always be prepared. In the event that a company doesn’t break-even by the end of the year, having access to savings or backup funds can be critical. Some corporations don’t reach break-even until their second or third year of operation, so be prepared.
Warren Buffet once famously said, “Do not save what is left after spending, but spend what is left after saving,” and this advice still rings true. Smart fiscal choices bring success in the long run. If you aren’t able to put money away, look into SBA loans as a financial backup.
Remember that your business plan is your blueprint and path to profitability. Referencing it will help you figure out whether you can afford to take on more debt for the long-term health of your business. Using your business plan as a living document can guide financial and staffing decisions based on your own data and profit and loss projections.
Financial forethought can be the deciding factor between failing quickly or building a successful business. Obtaining funding for your business is an exciting accomplishment; spend wisely and always be prepared for the unexpected.
Financial forethought can be the deciding factor between failing quickly or building a successful business. Obtaining funding for your business is an exciting accomplishment; spend wisely and always be prepared for the unexpected.
Hello!
I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.
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