The first year of business is full of excitement. But it’s also full of risk. The Small Business Administration reports that, in the first two years, three out of every ten startups fail.
Year one is the time to set up foundations for success. This involves building your infrastructure, fine-tuning your offer and honing in on your audience. There are no shortcuts to success, but there are some secrets you can use to improve the odds of survival. Here are five steps that can get you through the tough times as a business owner and help you reach your business’ first-year anniversary and beyond.
1 – Live Lean
You want to keep expenses down and look for every possible way to save. This will allow you to have more money at your disposal for the things you need to buy for your business. The extra money you save from one place can also be deposited into a business emergency fund for unexpected expenses. The overall result is greater financial vitality in the long run and more opportunities to grow your business. Hire temporary workers or interns, outsource the work to a freelancer, or try to do most of the work yourself. Negotiate every contract and ask your suppliers if they give discounts for early payment.
2 – Plan for problems
Think carefully about potential problems that could creep up. Then, make a plan for how you will survive each possible scenario. You might find yourself up against slow-paying customers and insufficient cash flow, which can result in your inability to pay your bills or, at the very least, late fees and penalties because you can’t pay your bills on time. To protect your business from cash-flow issues, try to maintain an account balance equivalent to at least two months of operating expenses. That way, even if your cash flow takes a hit, you have a strong reserve in place to safeguard your business.
3 – Learn how to hire
Hiring a qualified, 5-star team is one of the most important decisions a business owner will ever make. A top-notch team can boost your company in many ways, from morale to profitability, while a mediocre one will only drag it down. Take the time to think about the must-have technical and “soft skills” that every role requires. Ask your peers and valued friends if they know a candidate personally. A referral from a friend, a business partner or a present employee whose judgment you trust is one of the best ways to find an all-star hire. Finding and hiring the best talent is as important to your success as a savvy marketing and managing cash flow.
4 – Schedule some downtime
Even entrepreneurs need a break sometimes. Taking the time to pause, breathe and recharge your batteries makes good business sense. You’ll come back from every break with renewed energy and fresh perspective, resulting in big breakthroughs for your business and solutions to problems that you had previously struggled with. Establishing balance and allowing yourself some reprieve is the key to being successful.
5 – Harness your grit and resilience
One of the most exciting aspects of being an entrepreneur is taking risks. But taking risks also means that you may find yourself struggling with self-doubt from time to time, like when you lose a deal, have a bad quarter or miss one of your goals. At those times, focus on what you’ve been able to accomplish and overcome. You’ll often find that most success in business stems from pure grit and resilience, and to just keep going when the path ahead seems uncertain.
Bonus tip: Maintain cash flow with invoice factoring
Inconsistent cash flow is a real threat to small businesses. Cash flow is defined as the amount of cash coming into your company over and above all of your expenses. Basically, it’s money in the bank — the money that you use to pay your operating costs, payroll, expenses and inventory while waiting to get paid by your customers. In other words, cash flow touches many vital components of your company and, without it, your business could fail.
But what if you don’t have enough cash flow to cover expenses while waiting to receive customer payments? One easy solution is invoice factoring. It works by providing a cash advance based on the total value of the invoices that you provide as collateral to the funding source, known as a factoring company.
The factoring company gives you a certain percentage of the invoice value upfront. Then, you receive the remaining amount, minus a small factoring fee, once your client pays the invoice. In other words, invoice factoring turns your receivables into immediate cash, helping to prevent a potential cash flow crisis and take care of any “what if” scenarios. Having sufficient cash flow in place provides your business with a protective financial cushion, so you can focus on your top business priorities and sleep soundly at night.