Keeping an eye on your budget when starting up
Most of us love to spend. After all who can really blame us in today’s consumerist society? We are constantly bombarded by advertisements at every available opportunity and over every possible medium. There is of course a steady tirade on TV, Radio, billboards and now even on our mobile phones. What this all means is that we must be extremely careful not to be too overly stimulated by the adverts that we have been relentlessly exposed to, to buy when we shouldn’t. There is a reason that all the big companies invest large sums of money in advertising. It works!
Take as an example a visit to the supermarket where you have the opportunity to purchase a container of antibacterial spray. There are two options, your branded, well known household name, and another new entrant to the market. They are both the same size, and probably have largely the same active ingredients, but there is the perception that the brand we are familiar with – let’s say brand A is of a higher quality than the unknown brand B, and as a result we are probably not only willing to pay more, but we checkout safe in the knowledge that we have made the smart choice, the better “investment”. The likelihood is that in many cases, it is just the familiarity of brand A that has driven us to purchase it and hold it in such high regard. When we see the familiar brand A, it creates synapses and stimuli in the brain that we would have difficulty differentiating between quality and just familiarity. This is entirely normal, but can nonetheless have larger implications on a grander scale.
Now let’s imagine you have recently launched your business. You are living your dream. Having been employed in the accounting industry for more than a decade, and developed a wealth of knowledge, you have decided to setup shop on your own. You are confident that you know the market, and how to provide a good value, and quality service to your customers. So what is next? You need to buy equipment, furniture and software…the list is possibly quite sizeable. These are all necessary for your business, and it is therefore wise that you purchase all the necessary inventory of goods and services. The danger can sometimes be that in living the dream, you lose sight of your budget and spend money faster than you begin to earn it back. Cash is king in a start-up. The thriftier you are, the higher your chances of survival in this competitive fast paced world.
The tendency can be overwhelming to spend ahead of time, to buy some designer sofas for customers, to invest in that state of the art flat touch screen display. It is somewhat paradoxical, if I believe enough to boldly start my own business, why should I not be confident enough that I will make all the money back that I use to buy a top end executive car? Though this may actually not be entirely consistent, your job is to be enthusiastic and positive on the money coming in, but careful and conservative with the funds that are flowing out.
The more cash you carry the safer you are. Of course, it is terrible business not invest in comfortable furniture if you have many clients coming to your offices regularly, or to not invest in the latest cutting edge designer program if you can take your start-up to the next level with this set of tools. Think of your money as an investor. If you have high conviction that you need the latest electronics to be competitive, and that it will yield a return over what you spend then go ahead. If you have a steady stream of business to your hair dressers and the sofa needs replacing, consider buying a new one that gives the impression of a trendy, successful salon. Match your spending with your level of conviction. Being one step behind your profits is normally a good place to be. If you have suddenly had a boost of business, and are starting to feel squeezed by your resources, try to stretch the status quo as far as possible before increasing headcount, setting up a new network. This ensures that you do not find yourself in a position where the money is spent and the business has not come in. It is easy to spend, and harder to generate revenues and profits, so the order that you do this is critical. Finally the other key fact that every investor knows is that the only free lunch is to diversify. Do not pin all your hopes on one product line, on one great apprentice that you mentor, you never know what is around the corner so try to build safety through diversifying in every way you can. Be careful not to overspend on the dream, when your job is to make it a reality.