Financial stability is one of the hardest, yet most important tasks young startups must commit to achieving.
There are many stresses of being an entrepreneur of an emerging company. You worry about hitting your revenue goals. You worry about being viable or competitive in the marketplace. You worry about growing at a rate that's neither too fast nor too slow. You worry about the personal savings you've likely put up to fund your initiative. You worry about making your investors and supporters proud.
All of these concerns are multifaceted, but they can all be traced back to one thing: making enough money as a company. To be successful, you'll have to bring more money in than you spend on internal resources, and these five financial strains are the most significant factors you'll have to consider:
1.Production Efficiency. This is the amount of money it costs to produce a product or execute a service. In your business plan, you likely have a projected cost basis, but there may be hidden factors you haven't considered, such as additional shipping costs or additional man-hours necessary to oversee the production. Try to keep your production costs as low as possible, as this will be one of your most consistent expenditures.
2.Consistent Revenue. Building an initial stream of revenue is hard for young companies because your first customers will be unpredictable. The foundation for a successful, consistent revenue stream is recurring customers -- so do everything you can to retain the customers you do attract, and get them to buy again. Also be sure you've priced your products and services appropriately -- slim margins can kill even the best-positioned companies.
3.Workforce Balance. Your workforce should be able to handle exactly the amount of work that comes in -- not more, not less. If you're understaffed, your company runs the risk of collapsing. If you're overstaffed, you'll lose tons of cash. Add employees gradually, and rely on a network of independent contractors to fill the gaps in the meantime.
4.Sales and Marketing. Sales and marketing are necessary expenditures for startups -- without name recognition and visibility, you'll never be able to grow your business. Still, calculating ROI is tough and keeping that ROI positive is even tougher. Stick with the most cost-efficient strategies you can, but never stop investing in yourself.
5.Cash Flow. Just because you're profitable on paper doesn't mean a negative cash flow can't ruin your business. Put checks and balances in place to ensure your bills and employees are paid on time, and that your customers are paying you on time as well.
If you can conquer these five financial strains in your startup, there should be few obstacles remaining in your course to financial stability.
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Jose Vasquez is a serial entrepreneur and tech enthusiast dedicated to helping startup technology companies get the direction and momentum they need to succeed. As the founder of Build. Brand. Blast., Jose has established a collective resource for tech entrepreneurs to consult when brainstorming, creating, launching, or expanding a new business. Jose is also the founder and CEO of Quez Media Marketing, a marketing firm that combines technology and creativity to help new and growing companies get the results they need.
Jose graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.
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