subject: 5 Finance Tips For Business Start-ups [print this page] In this article well go over a few key things you can do, to help ensure that your startup will not fail in that critical period, from the time the business idea is conceived out to when you start to solicit rounds of financing well beyond that angel level.
Tip #1: Use Conservative Arithmetic
Startups arent complicated organizations, financially (unless of course you are in the financial services or trading business). Youve got an idea; make the math work and use very conservative projections and assumptions. Say you have software solution that you want to deliver to a particular market. Bring down those estimates on the size of the market; bring down those estimates on how much of that market you feel you can tap at the outset. Again, startups are simple organizations; there isnt much going on at this point yet, so its safe to use very basic formulas here to put together your tests for financial feasibility down on paper.
Tip #2: Dont Try to Make Something Work
If you find yourself in a situation wherein you have this spectacular idea, but somehow, you cant quite seem to make the finances work because of (just to use a random example) costs along the supply chain are just too high, then dont force the issue. Dont try to move stuff around just because you cant get the model to work on paper. Its a bad sign, and a true test of your business hypothesis, if the finances dont quite add up at this point.
Tip #3: Get a Second Opinion
If youre a two-man company, or an organization wherein theres just a handful of you guys (and/or gals), make sure to get somebody to check your work. It helps to have an outsider, from time to time, check your math and to check your analyses. Sometimes a fresh look is all it takes to glean a stark, fundamental issue with your startups finances.
Tip #4: Securing Seed and Angel Cash-capital
So far, all weve talked about are mere ideas, models, and thoughts on paper (finances on paper). But what if you feel your product, your business plan, and your finances are all in order, and now all you need is capital? How should you finance this project?
This is a complicated question, and some questions that you may want to ask yourself at this stage may be:
What are my own personal financial liabilities (e.g. mortgage, children/dependents, etc.)?
Can I absorb a complete loss of this business venture, should it completely crash and burn?
Are the capital requirements listed in this business plan lean and efficient enough, or can we trim in some parts, still?
Who do I know personally that has the financial wherewithal to contribute at such an early stage, and to take a risk on a business like this?
What time horizons is the business looking at (say, will it turn profitable in a year, two years, three years?), and how does this match up with other financials in my personal life (such as upcoming college payments for kids that are now only in high school)?
Tip #5: Take Credit Cards Seriously
So many college students believe that they can fund the next best thing on the Internet with credit cards. And though its true, so many so called cloud services are available on a month trial period, and then subsequently on a monthly fee based subscription, these credit card bills can quickly and easily add up.
If youre to sum up all that weve touched on in this pithy list of financial tips for those that are engaged in a startup, youd have to point to this thread: be conservative. Tips 1 through 5 all point to being conservative and playing out thoroughly. Whether youre considering using credit cards to launch the business or putting the pro forma spreadsheet together on your business plan: be conservative.
