Many new businesses have limited financial flexibility. However, some businesses are better funded than others. Regardless of your financial situation just starting out, you should be extremely conscious of expenses with any new business. Every dollar you save gives you a competitive advantage over your competition. This extra money can be reinvested into your marketing and advertising budget.
Before starting a business, you should make sure you have enough money to cover at least 2-3 years of expenses. Without this, you are cash-strapping your business to the point where it will not be able to function. Imagine if you won a new client that was a huge win. In fact, this new client was such a big opportunity that in order to service this client, you would have to hire a staff member just to fill this new client’s needs. That is risky if by hiring someone, you are spending a large portion of your cash reserves. This would affect how you approached negotiations with this potential new client. If they asked for net 30, could you do it?
Government contracts carry even greater risk. Do you have the cash to carry operations for up to 9 months while a budget gets approved? Most businesses can’t do this, which is a missed opportunity. Low cash reserves is another view of bad business credit. The idea is that if you are low on cash, you get a line of credit. If you don’t have cash, the assumption is that you don’t qualify for a line of credit. I personally avoid agreements with struggling businesses because cash-strapped business owners usually think in survival mode, exposing me to undue risk just by associating with them. Imagine the choice between your ethics and feeding your family.
Now that I have impressed on you just how important cash is to a business (and opportunity), there are some obvious things you can do in order to save cash. You must give yourself every chance to survive long enough to turn a profit.
1. Refinance: This should ultimately be done before you start a business (if you are leaving a steady job). Business owners have a harder time showing income, for a number of reasons. Any chance you can get, extend your loans. This will lower your payments. The interest rate is secondary to your monthly payments.
2. Renegotiate: This applies to people that rent. Find out what your rent should be and use that to get a reduction. If they refuse, move. It may be a hassle to relocate, but sometimes, even hiring movers, you still save money.
3. Repossess: This is a tough one and only works for autos that cannot be refinanced. If you are paying high monthly payments on a car that you can’t currently afford, don’t keep it. Your income will come, but your monthly breakeven will happen that much sooner without high car payments. Consider paying cash for a small pickup. If you can barter repairs, you can look at cars in good aesthetic shape.
4. Release: Sell things that you don’t need. You should be in winter survival mode. Everything you do at this point will be a step in the direction of your new life. You aren’t there yet, and you can’t claim victory until your business can support you.
5. Cancel: When I first started out, I canceled my cable bill. I called the cable company and told them I could no longer afford to pay a cable bill. They canceled my cable and I actually did not miss it. I was too busy working anyways. It seemed dramatic to friends and family but it helped alot. I also switched from Verizon to Page Plus, which offers unlimited talk and text plus 20mb of data for $45/mo.
Overall, I saved $500 per month. That is PER MONTH!. When I first started my business, I made the mistake of waiting, thinking my income would catch back up to my lifestyle. I didn’t realize that I could save that much while maintaining the same standard of living. I later realized, as I approached breaking even, that cutting costs would break me even, immediately! That first year, I wasted $6000 for nothing. That is a lot of advertising I didn’t do. Don’t make the same mistake. Be proactive and cut immediately. You will enjoy the advantage.