Although it’s easily the exciting sector for business and trade, small enterprises are like Bambi in their first few years. The failure rate is not only high, but it’s always going to be consistently high. Usually, people who are taking a crack at starting their own business for the very first time will be struggling to stand up let alone walk on their own.
The odds are going to be stacked against you; it’s just how the world works. The offset is, small businesses are generally really easy and quick to set up, and they also have countless ways to grow. You’re not always going to create the perfect combination.
Don’t be fooled by early success; it’s kind of like going to the gym. Because you’ve never been exposed to such circumstances, sudden and measurable gains can give you a sense of false confidence. What you need to do as soon as, but technically much better if you do so before, is to start building a safety net. Financially speaking, extra and or emergency funds are going to act like a guardian angel when the going gets tough; and it will!
Create a buffer zone
As businesses grow and expand, they need to be fed more and more. What may seem like a simple new product being added onto an existing line can punch a hole in your funds. The research and development are just the beginning stages. Next, you’ll need to test, improve and implement. Distribution deals and transportation will be the closing stages. Therefore your operating base of funds will continually change. They’ll be an ice and fire kind of battle as you’re profits and revenue increase and decrease.
To make sure you have a safe zone, whereby you’re able to operate your business without any increase in profits or revenue, would be a form of safety net. The question is the extent of the net. General practice is to garner enough funds to run your business for a financial quarter, i.e. three months. This is a buffer zone, to keep your business from collapsing and giving you enough time to adjust in the meantime.
Running your own business means you’re your own boss. You’ll be doing most of the legwork, travelling around the world, speaking to potential investors and business partners. Running into unforeseen costs is going to be normal, which sounds like an oxymoron. In essence, you need to expect the unexpected expenditure. Carrying around a wad of money with you is something of a cliche image of the monopoly guy, you’ll actually need a business expense account.
For that, you need a credit card. Different credit cards have different perks as stipulated here on https://www.marketreview.com/credit-cards/. They should normally be used only for emergency spending and or planned spending. The latter means you’ll be agreeing to a set amount of money being made available more often than normal. Doing so gives you person room to maneuver.
For example, you have had a sudden change of plan and need to get on a flight to meet prospective partners that have had to move your meeting forward. A credit card is immediately ready to be used for relatively low-cost expenditures like paying for a flight or train ticket.
Equity funds are a great way to become financially independent both personally and for your business. You can go the mutual route, but that means you’ll have partners involved. For maximum control of how much and what your money is invested in, a private equity fund is the only way. By putting up shares of your business or simply a good amount of your own money and heading to a private equity fund gets the ball rolling.
Your capital will then be used by those who own the private equity fund to make smart purchases for a higher sell-off down the road. Eventually, you’ll get a cut of the spoils out of every venture done using your money. There is a waiting process however as it depends on how fast the fund can make a failing project back into something that is workable and attractive to the buyer’s market.
However, this is a good background ticker, as your money is being put to good use in order for it to be multiplied. After a set amount of time or when a good sale is made, you’ll have a lump sum to collect. Use this money to then invest in your own business and save for a rainy day.
All small businesses will eventually run into some kind of difficulty in their very early years. As someone with vision and drive, you don’t want the carpet pulled from underneath your feet. There are so many options to build your own safety net and stay afloat, so think ahead and plan for worst case scenarios.