Published on May 21st, 2018 | by Sunit Nandi0
Practical Lessons for Every Entrepreneur That Wants to Run a Debt-Free Business and Lead a Stress-Free Life
We love reading the success stories of youngsters who built startups from scratch and then grew them into multimillion-dollar enterprises within a couple of years. It is akin to looking up to Hollywood stars. For both startup heroes and tinsel town celebrities, all we get to see and focus on are the glitz and glamour brought on by fame and success. However, for every such startup success story or small town boy making it big in Hollywood, there are hundreds and thousands of failure sagas as well. A startling piece of data we came across is that 100 million startups are launched worldwide every year, and 90% of them fail and shut down within the first year.
There are several reasons why startups fail, but almost a third of such failures is because they ran out of cash. Loans seem to be an easy way out for such startups, but the lack of fiscal discipline ensures that that one loan is soon followed by another one, and then one more and so on till the startup is soon buried under a mountain of debt and eventually breathes its last. However, all startups need not meet the same fate, and there are some steps that every startup owner should take to stay debt free. Let us look at a few of them.
Start expenses small
Most startups have a lifeline of investor funding or angel funding when they start off their journey. It encourages a vital mistake on the part of many startups, and that is starting big-ticket spending on things that could have waited. From small knick-knacks and elaborate team lunches to a swanky new office, most startups do not rein in their initial expenses. It puts much pressure on the bottom line, and this stress is something that the startup owner can easily do without if he avoids frivolous investments initially.
Set up milestones
With startups, it is easy to get carried away by plans for the big picture. However, for keeping the financial direction of a startup aligned, it is also critical to set up and adhere to smaller financial milestones instead of only speaking and thinking about the multimillion-dollar aspirations. It is all about money. So, the goals that you set for yourself should have some financial element attached to it. Do not stretch your goals too big, and it is all right to have rather modest ones initially but try to meet them without fail.
Try one thing at a time
With the blinding excitement and raw energy that a startup often brings to the entrepreneurs, it is easy to fall into the trap of attempting to do everything at once. However, it takes a toll not only on your energy but also on your finances. Say you have three different ideas for customer acquisitions for your startup and you want to run small pilots for each to see which works best for you. It would be better for you to try one at a time and fine tune the plans according to the results you obtain.
Hope for the best, but prepare for the worst
Experts say that more than the pressure of trying to make the company a success, most owners get bogged down later on by their lack of a Plan B when things do not work out smoothly. It is always good to be optimistic and gung-ho about your startup idea, but it is necessary that you have a nest egg to fall back on in case things do not work out. Second, just like a regular job, a startup owner needs to start putting away some amounts for a rainy day as well, and not blow it all up. Finally, at least in the initial days, it is okay for a startup or its owner to hustle a bit and think of some alternate earning on the side till the main idea starts giving regular income.
Be the CFO, not just the CEO
A startup has very few employees, to begin with, so wearing multiple hats is typical for most startup owners and employees. However, the owner should be doing one role without fail, and that is of the bean counter, someone who keeps track of what money comes in and what money goes out. It is fine to say that the startup owner should be talking about the big picture and speaking with prominent investors and having meetings with the biggest clients, but he or she also needs to sweat the small stuff and keep track of the cash flow.
Disperse your expenses
The key to staying out of debt is in ensuring that all payments do not hit you at the same time, because the income stream will also not be stable initially, and you will see a gap. Assuming that your revenue generation will improve as the months go by, it is a wiser move to also push non-essential expenses to the next month or next quarter or even next year, if possible.
Consolidate your debts
With loans becoming easily available now, a startup can be tempted into taking multiple loans, even after following all the steps listed above. However, as the company begins to service those loans, you may realize that it is a tedious job to keep track of multiple repayments. In such a scenario, it is possible to go in for a debt consolidation loan and replace all those smaller loans with a single large one. Once that is done, you must take steps to close down this line of credit at the earliest and go back to your debt-free ways.
As we said at the beginning of this article, a mismatch between income flows and expenses is the most significant concern that a startup can face, and that can quickly lead to debt. If the above steps are followed, the startup can maintain a debt-free existence for long, and ensure that all its profits are ploughed back into growth for the company instead of being used to service interest on debts.