Do you have the next revolutionary app idea? Are you thinking about how you can take your idea and make it a successful software-as-a-service business? You’ll need to start thinking about the business side of your software idea: the go-to-market strategy, the hiring process, the branding, and most importantly, the financing.
As an entrepreneur, you’ll need to learn how to separate your personal budget from your business budget. Many tech startups begin with very humble investments, usually coming straight out of the entrepreneur’s pocket. It’s a big financial investment; you’ll often need to purchase a lot of licenses, hire contractors, maybe even employees, to be able to even get your feet off the ground. It’s daunting.
In 2015, reports said that 90 percent of startups fail. There are myriad reasons for this. As an entrepreneur, how can you protect your idea, as well as your personal finances, from succumbing to the same fate?
1. Plan Your Budgets
It sounds simple, but in practice, it isn’t. You’ll face costly marketing opportunities, your client turnover rate may be unexpectedly high, and you can find yourself hemorrhaging money faster than expected.
While most businesses expect to report losses for a few years, especially self-funded startups, you need to limit those losses and achieve a path to profit as soon as possible to build a financially sustainable business.
Being an entrepreneur also means you need to protect your own money, so building a budget for your business and keeping it separated from your personal expenses will help keep you from losing everything that you’ve built over your lifetime.
2. Hire a Financial Advisor
An advisor doesn’t need to be a full-time employee, but you should consider having an accountant and a financial advisor as you begin to scale your startup. You can save yourself a lot of money and stress by hiring someone who has been able to guide other businesses to navigate their paths to profit as soon as possible.
Additionally, if you’re a first-time entrepreneur and you don’t know how to go about filing taxes for separate business entities, it’s better to hire an accountant who will let you know about all the potential landmines, including saving your receipts and cataloging your expenses, before you get to tax season.
3. Don't Let Your Excitement Get the Best of You
It’s easy to be caught up in the excitement of branding and advertising...the first customer you don’t know, the first time you see your own billboard ad, the first news article. It can all be very exciting.
But make sure you think critically about every investment you decide to make. If you spend a lot of time and money on offices, upgrading hardware, costly influencer marketing, or any other number of “growth spending” expenses, you may be neglecting other areas that need investment, like hiring better talent hiring or saving for slow growth periods.
Try not to jump the gun; it’s like going grocery shopping when you’re hungry. If you make a list and a finance schedule, it will be easier to adhere to your financial investment goals. You’ll have a better time navigating the “aisles” of being in business if you go in with a plan.
4. Limit Fixed Expenses Immediately
Anything you can do that will lower expenses without lowering the quality of your product or service is worth examining before it becomes too routine or too expensive. Do you need an office? Will a coworking space be cheaper? How many employees do you need? Can you outsource tasks or duties to freelancers? How important is packaging? What monthly or annual expenses could you reduce by switching to another product or service?
You’ve probably heard the term “lean” startup. The reason “lean” startups are so common is that opportunities for spending are limitless, but cash on hand is incredibly limited, so they must choose to spend only on what they need to grow, scrutinizing all financial decisions before making them. Every marketing dollar must have an estimated return on investment. You must recoup every dollar of product investment in profit.
5. It's All About Customers
Whether you plan to stay private, sell the company in an acquisition, or eventually go public, your company’s value is almost entirely dependent on the value of the user base. Focus on customers. Focus on acquiring new customers, and keep customers returning. If your service isn’t paid, your revenue will likely come from having user data or being able to advertise to customers, so each customer will have an average lifetime value. The value of customers and customer loyalties are your bread and butter. Without them, you have no business.
Figure out your acquisition strategies and explore your scalability options before investing too much. Many businesses spend too much before having a reliable customer acquisition strategy.
Need help with financial planning to help get your startup off the ground? Contact Glass Jacobson today for a free consultation.