Surviving the first year of your start-up is easy. That’s assuming you don’t need things like “food”, “shelter”, or “free time”. See, most of humanity just isn’t designed to run start-ups. When it comes to making a living, nature designed us to communally hunt mammoths, not to spend 19 hours a day in front of a laptop. And frankly, the former would be easier. But if you have to be your own boss anyway, try these:
Why One Year?
Because most start-ups (about 70%) die on the first year. This is due to capitalization. Most people don’t have sufficient money to sustain losses for one straight year.
But if you can weather the storm, most start-ups are stable from year two onward. Even if they’re not profitable, they’re at least breaking even. That’s not a promise mind you, it’s just a statistic (Woah, I sounded like a White Paper advocate there).
So to cross that magical first year mark, you need to:
- Plan the Entire Year’s Budget in Advance
- Start Saving a Year in Advance
- Don’t Skimp on the Wrong Things
- Strategize Client Meetings
1. Plan the Entire Year’s Budget in Advance
Before you launch a start-up, make sure you have the entire year’s budget planned out.
Okay, how did you react to that? Did you roll your eyes and say “Duh”? Because if you did, leave your address below. I’ll know where to send the charity package when your start-up tanks.
Planning a year’s budget is not “common sense”. It’s an act of financial genius. Scribbling “$4.50 meal max” on the back of a napkin doesn’t cut it. Apart from the big things, like loan repayment, you need to note:
- Entertainment budget for clients
- Postage and courier costs
- How much you want to take out of the business every month
- Emergency taxi fund
Once you’ve recorded every little detail, get someone to look it over. Run it past other start-up owners, the family accountant, etc. If it doesn’t take you something like three months to do this plan, you probably haven’t planned enough.
Besides that, you need to calculate a stop loss (kind of like if you’re trading on Forex). Determine how much you can lose before you shut down the business. Plan for it and wrap your mind around it, before starting business.
2. Start Saving a Year in Advance
Most start-ups will run at a loss, for the first six to eight months. So cool, you just save six to eight months of your income, right?
Yeah, and maybe next time you go fishing, bring six worms when you want to catch six fish.
You need to factor in emergency costs, especially if you have no insurance. Also, some start-ups break even in six months, but suffer sharp losses later in the year. Bike rental stands, for example, often take a hit in late December (That’s when in rains so much, people in Hong Kah need snorkel tubes to get home).
In short, you need to stockpile enough money to last 12 to 18 months. That’s safe. You’d better start saving early, maybe up to a year before launching your start-up.
3. Don’t Skimp on the Wrong Things
Running a start-up turns you into a total miser.
Trust me, no matter how generous you are, you’ll be full Scrooge by month four. If you died suddenly at that point, an embalmer would need a car jack to pry your wallet from your hands. You need to plan ahead for this, because there are some things you can’t allow yourself to skimp on.
These are things that, if you skimp on them, would cost you more than you’d save. For example, a cafe owner can’t skimp on location. An online business can’t skimp on its web developer. A salesman in Sim Lim can’t skimp on good running shoes (our cops run pretty fast).
Before you started, get some professional advice on what’s essential to your start-up. Either ask people in the industry, or follow us on Facebook (we’ll cover this in detail soon).
I find it useful to list three things, out of everything your business needs, as essentials. Place the list in a very visible place, to remind yourself that’s where you spend the money first.
4. Strategize Client Meetings
$8 coffees are impressive, while costing less than $15 meals. A high end cafe is therefore the most logical place to meet clients.
So avoid lunches and dinners. Always ask to do coffee instead, and you’ll save oodles of money. You might also want to take a day or two to scan for discounts: Try to bring the clients to places where you get a credit card bonus, frequent customer discount, etc. Look on MoneySmart for the better dining deals.
See if your business assets can contribute to your personal finances.
The most obvious example is using your cashback credit card as a company card. Funnel a few thousand in company expenses through it, and you could get back $50 – $600+ every month (depends on the card in question).
If you’re single and not too fussy, you can also use your office as a residence. I know at least two start-up owners who did this for more than three years; you just have to be careful to keep the place presentable. And most start-up owners will never sleep before 4 am again anyway, so you may as well get comfortable on the office floor.
How did you survive the first year of your start-up? Comment and let us know!
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