Some Reasons why small businesses/Startups cripple and fail through the financial struggles?
You may have read about some of these challenges as reasons why some startups fall short during this phase of their businesses. In fact, there are so many reasons why but let us look at these few per my research.
Poor or No business plan
Firstly, the key to understanding why you need a business plan is in understanding what a business plan for a startup is all about. Most startups and small business owners misinterpret the business plan with operations plan.
Startup business plan is not an operating plan. It is neither a handbook for running your business: your startup business plan should serve as an investment plan for potential investors/investment.
In otherwise, the business plan should guide the startup on how to turn your business ideas into cash, position (positioning discussed in last article) itself and be available for funding from potential investors and to make money for both parties (startup business and the investor). Some startups don’t even have a business plan. They simply conceive an idea and just launch out because they figured that they could run their business without it and develop a business plan when the need for a financial investor come their way.
A good and comprehensive business plan is a starting point to overcoming startup financial struggles, making it attractive enough to earn financial investment. Make a good deal emphasis on the following.
1. financial plans
2. cash flow strategy
3. financial projections
The above list is just essential as the business plan. Most often a comprehensive business plan would entail the listing but not very detailed enough to get you through a financial struggle. (Earn a financial freedom via investor funding and other funding opportunities)
Startups are always afraid to price their services/products to their financial inputs. They are scared of quoting deservingly for the fear of being over-priced, under-priced and avoiding prospects/customers grudgingly not accepting their prices because they are entrants or startups. Not quoting what you’re worth; thus, your inputs is a step in digging your business financial grave.
Nothing kills startup ideas and growing businesses faster than operating with zero funds – running out of cash. It is very important to have good enough funding before you launch out into any venture. A little good enough to take care of all your startup costs and after to enable you run while penetrating your market. These, most startups tend to overlook. Entrepreneurs mostly forget their monthly expenses and working capital are essential and hence fail to factor it into their costs. I have had some startup owners come to share their dreams of starting their businesses and basically have no clue of how to calculate their startup cost or sheet. It is very necessary to know how much you need to start a journey with but most importantly how much you would need to sustain you through the journey. Don’t just start off with what you need, make plans for monthly expenses and working capital in your startup budget (unexpected expenditure).
Hiring too quickly
“One man can not do the job, but one man can plan it” –Harmony. You don’t have to hire immediately. It is not a good strategy for startups to hire at their struggling or penetrating phase, it will certainly incur extra financial burden but why not if you have the financial cushion.
I remember having invited some friends some years ago to join me start a business. Initially, some hesitated and came on board; some fell off like “dry leaves” due to lack of motivation and foresight. In the end, I had none left standing except myself, and then I realized there were other startups like myself struggling to get the works done. All I did was to employ the barter trade mechanism (trade equity). I looked out for skills I needed to get specific works done and I traded them for other services they also needed for their help. It is not that easy as it may sound but it is doable. “As a startup or a growing business, you don’t have to grow alone, grow with others, build relationships and trust; you don’t have to face the struggles alone. Disseminate your tasks strategically to save cost for other important growth needs. Business relationships are very essential for growth” – Harmony.
Lack of market knowledge
Most startups and growing business do not have the adequate knowledge of their market. They had barely researched about existing markets and competition, consumer preferences, economic advantage among others. Because entrepreneurs lack the foreknowledge of their markets, they spend good fortune and time trying to penetrate these markets and to stay relevant which ends them in financial debts.
Cash burdened projects
You do not have to startup BIG. Take up what is within your means; growth does not happen in a day. A project doesn’t have to be “expensive” to be unique. Mostly because some entrepreneurs lack originality, they “lift” other people’s project without knowing the cost implications. In the process of execution, they spend much more than have and hence running into debt or either failing at it.
Most economies are simply just not startup friendly. They are not favorable for small business growth. Every entrepreneur must make it a point to be familiar with their country’s economic standings before launching out. Taking for instance our country’s economic situations into consideration, startups need to tread cautiously to avoid folding up or falling into huge financial debts. Don’t rush in to fold up quickly!
Author: Harmony Attise