For any business owner, whether you’re setting up for the first time, or have years of experience, failure is a terrifying option.
So if you’ve ploughed your life savings into a company, what should you watch out for to make sure your finances – and your family’s future – aren’t laid to waste?
1. The Groundwork
Too many businesses are created from an individual idea of what constitutes a good product or service.
But you don’t want to be left saying “it seemed like a good idea at the time”, so talk to some people you can trust, and find out whether people who aren’t emotionally involved in your idea still think it has merit.
You can add to the objective evidence behind your plans by researching the possible market size and likely production costs of your new venture, or the cost of any equipment and training you might need to start a new client service.
If the numbers don’t add up, don’t convince yourself to give it a go anyway, as there’s likely to be too much on the line – business, particularly in difficult economic times, is best ruled by the head and not the heart.
2. The Finance
If you don’t have the finances yourself to fund your venture, you’re going to need to get the money from elsewhere.
Securing investor financing is actually a good sign that your idea is a good one, while grants that do not need to be paid back might be useful if things go wrong, as you shouldn’t be left with anything to repay
When you’re using a loan that must be repaid, or your own money is on the line, be especially certain about the profitable prospects for your business plan.
3. The Effort
Getting a business properly off the ground can take more than just 8 hours a day, and if you’re holding down a ‘normal’ job at the same time, it’s going to be doubly difficult.
Make sure you judge the risk-reward ratio – if quitting your day job is worth it, then go for it, but don’t be surprised if you find yourself putting in a few evening and weekend shifts as well.
4. The Bottom Line
Cashflow and other financial issues relating to the day-to-day running of your business can put extra stress on your investment capital and your own funds.
Keep on top of the basics, like invoicing and chasing late payments, as well as on the financial admin like tax returns and paying your tax bills.
If you’re self-employed for the first time, make sure you’re keeping enough to one side to cover your tax when it’s time to pay it – and if you’re not managing to save enough, be realistic about it, as it may mean your business is not actually profitable in true terms.
5. The Staff
Finally, as your business grows, you might eventually need to take on staff – and this is where things get complicated.
Make sure your employees have the expertise you need, or that you can train them to the necessary standard, and reward them suitably for their efforts – both financially, and in terms of recognition.
Combining this focus on the human capital in your company with the financial issues mentioned above sets you on the road to a well-rounded management style that should give you the best chance of responding to any challenges as they arise – and help you to avoid these most common causes of disaster for new businesses.