By Jack Seymour, who is Business Development Manager at Pinnacle Business Finance
Hindsight is a wonderful thing! And it’s never more valuable than when it comes to starting up your own business. Very few successful or unsuccessful business owners look back at their early days and claim they wouldn’t have done things differently, and more often than not, financial aspects play a big role in this.
Nothing can replace experience, but there are a few common pitfalls you can avoid when it comes to financial decisions for your own start-up.
- Make sure you’re fully aware of what you’re getting yourself into – before we move on to the business decisions that will have a financial impact, it’s important to make sure you’re doing this for the right reasons. Too many people see starting their own business as a means for financial gain, better work-life balance, and more freedom and flexibility. Whilst it might be rewarding in a personal sense, and pay off financially in the future, there’s a good chance you’ll need to work longer hours than you ever have before, at least initially. Plus, whilst you’d always hope to run a profitable company, it should be remembered that it’s by no means “easy money”, with most businesses not turning a profit until their third year. You may also want to consider the possibility that there might be times you aren’t always able to pay yourself a wage.
- Don’t rent office space too soon – this is especially pertinent at the moment, with businesses all over the world adapting to remote working and realising that perhaps they aren’t as dependent on a physical office as they thought. Regardless of the current situation, however, it makes sense to keep your options open for as long as possible. Rent is likely to be one of your biggest outgoings, so if you can save money here initially, it makes sense to. For example, if there’s only two or three of you, you can meet in coffee shops and each other’s homes (as long as this abides by current socially distancing measures of course). It also gives the business more chance to establish itself and prove itself to be less of a risk.
- Make do without luxuries – if you have just moved into a new premises, and you’re excited about the new business you’re unleashing on the world, it can feel difficult not to get carried away, but ask yourself whether you really need that fancy coffee machine, audio system or branded company car before you splash out. It also pays to be stringent with things like expensive software or tools that you may not use regularly enough.
- Don’t hire people too early – again, it’s easy to get carried away in your enthusiasm for your new business, and an extra pair of hands on deck can be tempting when you’re putting in long hours, but remember to really think through whether you have enough work for the long term. If a client were to leave, would you have to let your new employee go? It’s also worth remembering that the true cost of hiring someone is usually between two and three times their salary, by the time you’ve included things like pension contributions, insurance, holiday pay, equipment, and training.
- Keep an eye on cash flow – this could go without saying, but we’ll say it anyway as it’s crucial to the future of your business. Having a proper system in place from the get-go allows you to track cash flow successfully. This couldn’t be more important. It’s natural that you may need to make investments early on, and it’s normal not to be turning a profit at the beginning, but there’s a big difference between breaking even and spiralling into unmanageable debt. Burying your head in the sand will only cause you greater pain further down the line.
- Seek professional advice – common sense goes a long way but deciding not to use a financial services provider or qualified accountant, is like going into a legal battle without a solicitor. It’s a decision that will pay for itself.
It’s not an easy time right now for start-ups, but you can learn from those who have been there and done it, to make sure you’re making smart financial decisions and putting your business in the best stead for the future.