10 Lessons for Every "Shoestring" Entrepreneur
Starting a business requires adequate capital. However, many
entrepreneurs are finding that capital alone is not a guarantee
for success. Some businesses start out with millions in the
coffers, yet end up in the dumps. While a few businesses with
shoestring budgets eventually grow to become extraordinary
successes.
How can this be? Success in entrepreneurship is not necessarily
a contest of having the fattest wallets. Rather, it is an
exercise of smart financial management, careful strategic
planning, and yes, lots of luck. Successful entrepreneurs know
how to stretch and maximize every single dollar.
Here are ten ways entrepreneurs on a tight budget can still come
out a winner:
1. Set realistic goals. The first step every start-up
entrepreneur must do is to determine the right scope and size of
your business. Many entrepreneurs simply jump into the idea of
starting a business, without understanding what the business
really entails - financial requirements, management know-how,
and technological skills, human resource requirements. They
eventually fall short of what they can really do. Review the
business you have in mind and determine if it is within a range
that's both attainable and desirable.
2. Plan your costs properly. A lot of entrepreneurs start a
business without the faintest idea of what the costs will be.
They either overestimate the cost, or worse, underestimate the
financial requirements needed to properly capitalize the
business. This is particularly evident in the preparation of
financial projections in the business plan. Some entrepreneurs
prepare financial projections with numbers that don't square
with other sections of the business plan (e.g. marketing section
calls for local television advertising yet budget is only $200).
Some do not even include a list of assumptions to explain their
numbers. From out of the blue, they feel that their business can
grow from 20% in the first year to 40% in the second year,
without explaining how the increased growth can be achieved.
3. Smart financing for your business. Financing a small business
is not a lock-stock-and-barrel proposition. For many
entrepreneurs, there is no single source to finance their entire
operation. The money provided by one source (e.g. your mom) may
be enough to buy your raw materials, but you still need money
for your working capital. Entrepreneurs need to look at
financing as the sum of the parts of their business: what you
finance are the individual assets needed for your business. Your
question should always be: "What's the best way to finance this
asset using the least upfront dollars?" The ideal financing
source is one that provides the longest payback period, carry
the lowest interest rates, require little or no collateral and
demand no personal liability. Alas, that may be fairy tale. The
next best thing is to choose what makes the best sense for you
and your business, given your priorities
4. Put your money where it will bear fruit. Shoestring
entrepreneurs have one common characteristic: they lack money
and often struggle to raise capital for their businesses.
Capital of a start-up venture goes to either of these
investments: "fixed assets" (furniture, fixtures, and
equipment), or "working assets" (inventory and working capital).
Despite the lack of capital, many small business owners put most
of their money to buying fancy equipment and chic office space -
costs that a struggling start-up can do without. This is a
common error in business decision-making. Successful business
owners put as much money as possible into the working assets -
which bears cash and sales - and as little as possible into
fixed assets.
5. Is it the right time? Timing can be a key to the success of a
start-up. There's a right time and a wrong time to open a
business, especially if your business is cyclical in nature or
in a seasonal location. The opening of a retail slot in your
favorite mall, or your own convenience should not be your
reasons for starting a business. Rather, you should plan through
the months when the crest for the demand of your product
cyclically ends.
6. Control the cash. Cash flow is said to be the lifeblood of a
small business. And rightly so. Your business will survive only
as long as it has the cash to pay for your financial
obligations. With limited capital, cash flow controls every
decision in shoestring enterprise, and it can be the only way to
navigate during your start-up phase. One key rule for
entrepreneurs: only when you have adequate cash can you even
begin to think of profits. Many businesses fail not because they
are undercapitalized, but because they fail to properly plan the
undercapitalized operation.
7. Push the sales. Building sales depend on several factors -
nature of the business, location, level or competition, and
intensity of marketing and promotion. The goal of every
shoestring entrepreneur must be to build up sales immediately.
If you have a bank loan or financed your business through credit
card, for example, your creditors will not allow you to delay
your payments just because you are still in the process of
building up your sales. They want your payment - now! You
therefore need to push the marketing of your business, maybe
issue a flyer this week, run a one-paragraph ad in the local
newspaper the next, send out news briefs and article
contributions. The key rule is to dedicate at least two hours of
your day to marketing your business. Know the steps you'll take
before you open and after you open to maximize sales and help
the business to fast sales increases.
8. Balance your sales and profit objectives. Sales and profit do
not always go together. Some entrepreneurs are willing to cut
down their profits in their effort to drive sales up. Oftentimes
volume alone will not be able to compensate for the loss in
profits. Try to maintain gross profits at least equal to the
industry averages. Strive to give the business the best balance
between a solid policy of capturing sales without sacrificing
needed profit margins.
9. Be 'lean and mean'. A struggling start-up does not need dead
weights. Keep your fixed costs down, and spend only on items
that can sufficiently contribute to improving the bottom line.
If you can still adequately operate from your home office, there
is little need in leasing an office space in the downtown area.
Avoid hiring a permanent employee if you can still make do with
temporary and seasonal staffs Every dollar in expense should be
directly tied to income: spend a nickel only when you are sure
you can get a dime in return.
10. Master the financial tools. As a business owner, you are
responsible for the life and growth of your business. This
entails knowing, not only the marketing or production aspects of
your business, but the financial tools you need to manage your
business effectively. Understanding the finances of your
business will give you control over its direction. Unpalatable
it may be to some entrepreneurs, knowing the money part of your
business will tell you where you've been, where you're going,
and how fast you're getting there. Sure, you can hire
bookkeepers and accountants. But you yourself need to understand
your cash flow, income, profit and loss statements, and
break-even point.