Let's keep it simple and practical for aspiring entrepreneurs.
One of the biggest issues aspiring entrepreneurs face is poor cash flow management (of funds received).
Aspiring entrepreneurs must manage their operations by projecting themselves as established business owners. When starting up, you are the boss, so act accordingly.
Leading to defining 3 simple key points that an aspiring entrepreneur must take into account to embark on an entrepreneurial journey:
1. As a small business owner, your person cannot be separated from your business; you are the one who runs it, so your personal lifestyle will ultimately affect your business.
Make sure to include your personal expenses for the first 6 months of operations (or a year, depending on your type of business) in the amount of financing your business needs (your capital). Which must include:
• Transportation
• Food
• House rental and utilities
• Entertainment (you need to be able to have some money to network, attend business events, and go on weekends away with your family).
Your emotional and mental well-being are very important when starting a business because everything is energy. When you feel good and stress-free, you attract positivity. Haven't you wondered why large companies have an entertainment budget for their executives?
This money that you add to your financing application will make you flexible, able to move around and quickly fix challenges when starting your business.
But the most important thing about including these personal expenses in your financing request is that it will prevent you from using the money you received to finance your business for personal purposes and to solve personal problems.
2. In your income statement projection, the added money mentioned above should be included in your capital. Which means it must be included in the amount of investment you requested. The numbers you present don't necessarily have to show a significant profit in the first year, but if they do, you have a pretty good business.
The main thing to consider is sustainability. Even if your business does not make a profit in the first 6 months or year, it should not financially affect your personal and family life because you are looking for funding to start a business to have a better life and be financially better.
In fact, Amazon wasn't profitable for years at the beginning. During this time, I don't think Jeff Bezos had any trouble making ends meet.
But remember, you're not there yet, so you should have modest needs based on your current financial situation. When you start your business, you won't go on a weekend vacation to a 5-star hotel with your family because someone is funding your business. This is also a clear indication that you are not good at cash flow management.
3. Regardless of the size of your business, give yourself a salary and adjust your lifestyle accordingly. This is about the financial level you are at, and you need to stick to it, even if your business takes off as soon as you start operating.
The use of money you have earned as profit when your business is successful needs to be managed well because it will determine the sustainability of your business. The business environment may change, as it may be impacted by exogenous circumstances (e.g., Covid-19). Therefore, keeping a portion of your profit after debt repayment as a reserve can give you leverage and sustain your operations when adverse events affect your business.
Additionally, having cash on hand can allow you to invest in your existing business to meet growing demand, invest in other business opportunities unrelated to your current business, or fund market research to seek new opportunities.
Successful entrepreneurs invest large sums of money to start businesses in the hopes of starting to turn a profit after 2 or more years of operations, but they hire highly qualified executives to run these projects. They offer them higher than market salaries with benefits because all of this was budgeted as being included in the investment necessary to set up their operations.
So, as a startup owner, you are the executive of your business, for which you need to apply the same procedure but on a smaller scale.
This strategy prevents an aspiring entrepreneur from using the income generated by his startup when he starts operating to cover his personal expenses.Thus, the aspiring entrepreneur can't be under pressure to make money when starting his business because he is not on survival mode.
Marius Yusuf M. C. Oula
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