Sunday, October 28, 2007 at 10:30pm by Site Administrator
Businesses go out of business all the time. It’s a fact. And it’s almost always because of cash flow problems, possibly due to serious debt. It doesn’t always have to be that way, though – something bootstrapping entrepreneurs probably know better than anyone else. Look deeper at your business workflow; is there something about the way you’re running your business that might be resulting in extra costs? Consider the possibility that one of the following behaviors might be affecting you.
- Using desktop software. Most new businesses these days probably use software. But desktop software that you install on your computer can be very costly. Some require “site licenses”, which might mean you have to pay a fee for every person on your team – even if they are not going to use the software. Webware, on the other hand, is either free or paid per person. The cost savings can make or break you. If you have remote team members, at the least try web-based project management tools and meeting managers.
- Buying in bulk. Buying in bulk because “it saves money” is not a wise move, financially speaking. If you don’t need it, why commit funds? In the early stages of a startup, you’ll need cash for all sorts of expenses, and if it’s all committed in bulk quantities of items that are not expected to run out for a while, where do you get the funds for what you need right now?
- Being extravagant. Unless your impressing your clientele is an absolutely essential part of what you do, buy quality but affordable equipment, furniture, supplies. Chairs at $600 might be nice, but you can buy 3+ relativly good ones for the same money.
- Not delegating tasks. If your time is spent doing tasks that someone else can do cheaper – and likely just as well or better – then you’re potentially losing opportunities or simply not doing the bread and butter work. Delegate as much as possible.
- Not keeping receipts. Entrepreneurs working for themselves, or with just a few employees, are still in a mindset where they don’t separate personal and business expenses. Simple truth: the less receipts you save, the less you tax writeoffs you’ll have. If you’re really bad at it, and if your accountant is conservative when filing, you could reduce your tax returns by several hundred to several thousand dollars.
- Not paying bills on time. This goes hand in hand with buying too many items in bulk “to save money”. If you can’t pay for it with cash on hand, you’ll buy it on your business credit card, which could mean interest or “late fees” of some sort.
- Not collecting accounts receivable. Always been on top of payments owed to your business. Many new businesses that go under often do so because they experience growth that their cashflow cannot handle. Use web-based invoicing applications, which send clients automatic reminders. Some even accept payment into your bank account. You can also use Paypal invoicing.
- Jumping the gun. Launching too many projects simultaneously on limited capital means you cannot devote the time and budget each one requires to be nurtured to a successful state. So at the end of the day, you have several projects not earning but costing you money.
- Overzealousness. Cramming in too many features into a product/ service offering is as bad as launching too many projects. You fragment your resources. Instead, start with an offering that you can offer with great quality, then as revenue comes in, apply the principles of kaizen to add features as necessary, or on demand by clients/ customers.
- Not designing w/ scalability in mind. If you design a system or process that cannot be scaled up when the time comes, that could mean having to redesign from scratch and thus expenses you’re not prepared for.
- Not bootstrapping. Not sticking to the necessities of your business. This is a catch-all point. Bootstrapping essentially boils down to only spending on what is absolutely necessary. Increase expenditures as revenue allows, and come up with alternate, less expensive ways to get done what you have to. When the business grows and you have larger cash reserves, you can ease up on the bootstrapping, if you find it too restrictive.
A final suggestion if you’re concerned about your cashflow: check out our article The Poor Entrepreneur’s Toolset: 100 Freebies for Bootstrappers.
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