A few years ago, I collaborated with the founder of a startup that received over $150,000 in funding. I believed that she was going to run one of the most successful companies I have ever seen. Unfortunately, she burned her money in six months and filed for bankruptcy, because she couldn’t manage her funding appropriately.
She isn’t alone. Too many business owners think they are home-free after getting funding.
Securing funding for a business is not easy anymore. Institutional lenders and venture capitalists became much more conservative with their money after the financial crisis, so small businesses must find more creative approaches.
If you’re able to secure funding, you are already ahead of the game. You probably have a much more stable cash flow than other businesses. But don’t let that make you overly confident. Your business is actually more likely to fail while it is growing quickly. It is imperative that you manage your cash flow and funding appropriately if you want to succeed.
1. Build your A-Team
Vanity is the downfall of many entrepreneurs. The surest way to derail your business is by thinking you have the competencies, resources and time to handle everything on your own.
You need the support of many talented professionals to grow your company. Hiring an accountant is one of the best ways to use your funding. The ROI from the time savings of hiring an accountant alone can be over 300%, even if you charge the same hourly rate as them. This is because they are many times more efficient at balancing the books than people without accounting training. The real ROI is much higher, considering a trained accountant can identify tax deductions and other saving opportunities you wouldn’t catch on your own.
An experienced team of attorneys is also worth their weight in gold. Legal problems are the root of failure for many businesses. Gawker was forced do you file for bankruptcy last year after losing a $100 million dollar lawsuit by Hulk Hogan. They could have avoided this fiasco by hiring and listening to better attorneys.
2. Detailed marketing research
The National Business Research Institute estimates that the average ROI on marketing research is approximately 30%. Most companies are highly pleased with this figure, because the returns are realized more quickly than most other investments.
For many cutting-edge businesses, the benefits of marketing research are much higher. In fact, they can make the difference between success and bankruptcy.
Why is marketing research so important? The biggest problem is that the majority of products are failures. If companies perform adequate marketing research early on, they could minimize or eliminate the losses they incurred by investing in products with little demand.
Investing and marketing research is necessary before investing in R&D or Marketing.
3. Nest Egg for Unexpected Problems or Missing Projections
Don’t expect that you are going to break even after your first year. Most businesses take at least two years to break even. Things never seem to go as planned when you are starting or growing a business. Smart entrepreneurs understand and plan for the inevitable challenges they face.
Having a nest egg as an emergency fund is important to keep your company afloat after missing projections. As the saying goes: hope for the best but plan for the worst.
4. New technology after assessing the ROI
Technology is of the upmost importance for almost every company in every industry. Unfortunately, it is too easy to waste resources on technology that doesn’t contribute to your ROI.
You must do your due diligence before investing in any new technology. You should be careful about investing in technology that is mostly for showing off to customers or reducing some mild inconveniences. Is it worth investing in iPads to handle all of your emails, when all of your employees can use their smartphones in the field? Using a smartphone might be a little inconvenient, but it is probably better than paying a few thousand dollars for tablets that you don’t need.
Use Your Money to its Fullest Potential
It is easy to get excited after getting new funding for your company, but you need to keep yourself in check. Resist the urge to go on a massive spending spree, because you will it is easy to burn through your money quicker than you expected. You need to use your money as wisely as possible to ensure you have a sustainable business venture with the highest possible ROI.