5 tips to Avoid Running Out of Capital

Often, entrepreneurs are fueled by passion for their product or service, their love for career independence, and the joy a “winning business” brings. It is not uncommon or surprising that when entrepreneurs do see red flags, such as losing money or overspending, they desire to keep going and push through. But is that the right thing to do?
 
It depends. A company can do well or do poorly based on how well resources are utilized. Cash flow is a strong indicator of the health of a company and whether it will survive. A rule of thumb for startups to keep in mind is that the initial phases of a business will include losing money until the company can firmly support itself. The balance of this understanding means that as a business owner, one must thoroughly understand the stages the company will go through, and how to build a scalable business so that long-term, the business is profitable.
 
There are ways to optimize the opportunity for a business to complete the phases of business sustainability. Below we outline 5 ways to avoid running out of capital and staying more than afloat – but instead becoming profitable.
 
Build a scalable business model
This is probably the most important step to take when starting a new business. Creating a scalable business model allows you to create efficiency before investing large amounts of money or capital into the business. It’s extremely important to not only have a great product and brand, but to also know how to reach your customer base and establish efficient processes to grow your business. Having a scalable business is also attractive to investors.
 
If you’re unsure of how to build a scalable business, find someone that can
Yes, your scalable business plan is that important. If you can’t create it, ask someone that does have the skill to do it for you.
 
Set your limits before you get in the weeds of the business
Know when to keep pushing through business challenges and know when to call it quits. Too often, startups are pushed to the limits and performance ironically does the opposite of “keeping the faith” and fails. How much of your personal money are you willing to invest? How much time are you willing to invest before the company takes off? What are the measurable goals you plan to achieve? These are just a few of the points to address and know where your boundaries are set.

Focus on Cash Position
There are many key performance indicators that can guide managing a business, and your business model will determine which are most appropriate.  However, particularly in early stages, the cliché “cash is king” take on higher meaning.  New businesses need laser focus on how much cash they have, how their current expense level translates to the draining of that cash, and how each and every decision impact both.  Both strategic and tactical planning needs to be cash focused, or a business can find itself in the doomsday scenario of running out of cash.
 
Do your homework on viable sources of funding
There are plenty of options to seek funding from, and not all are equal. Family and friends, angel investors, venture capitalists, and even your own funding are all possible ways to get your business in motion. Find the right option that will allow your business to expand through plenty of research and asking plenty of questions.

The bottom line is starting a business brings its fair share of ups and downs and risks and rewards. As an entrepreneur, it’s up to you utilize your resources, intuition and money management skills to manage both. A rule of thumb is to aim for realistic financial goals that will not cost your new business too much long-term, and try your best to plan, plan and plan!