Starting a new economic activity requires capital . However many entrepreneurs end up learning that capital alone is no guarantee of success.
Many companies, as the Internet bubble so well demonstrated, started out with millions in their coffers only to end up in the “pipes.”
While a few companies with shoestring budgets eventually grew to be extraordinary successes. How can this be?
Success in entrepreneurship is not necessarily a fat wallet contest.
Rather, it is an exercise in smart financial management, careful strategic planning, and yes, a lot of luck .
Successful entrepreneurs know how to make the most of every peso or dollar they have.
10 Tips For Entrepreneurs With Scarce Economic Resources
1. Set Realistic Goals
The first step that each businesswoman must take to start a new activity is to correctly determine the scope and size of her business.
Many entrepreneurs simply jump at the idea of starting a business, without understanding what the business really entails: financial needs, management knowledge, and technological knowledge, human resource needs. They finally come up short with what it can actually do.
Study the company you have in mind again and determine if it is within a feasible and desirable range.
2. Plan Your Expenses Correctly
Many entrepreneurs start a business with no idea of the costs. Either they overestimate the cost, or worse, they underestimate the financial resources needed to properly capitalize the business. This is especially evident in the preparation of the financial projections in the business plan.
Some entrepreneurs prepare financial projections with numbers that don’t add up to other sections of the business plan (eg, the Marketing section talks about TV campaigns with a budget of $200!).
Some don’t even include a list of assumptions to explain what they based their numbers on. Out of the blue they feel that their businesses can grow 20% the first year and 40% the second, without explaining how this growth can be achieved.
3. Finance Your Business With Intelligence
For many entrepreneurs there is no single source that allows them to finance the entire operation. Money from one source (eg mother) may be enough to purchase raw materials but you will still need money for working capital.
Entrepreneurs need to view financing as the sum of the parts of their business: what you finance are the individual assets you need for the business.
You should always be asking yourself: What is the best way to finance this asset using the least amount of dollars up front?
The ideal source of financing is the one that provides the longest repayment period, the lowest interest, requires little or no collateral, and demands no personal liability. Oh, almost a fairy tale. The next best thing is to choose, given your priorities, what makes the most sense for you and your business.
4. Put Your Money Where It Pays Off
Low-income entrepreneurs have one thing in common: they are short of money and often struggle to raise capital for their business. Start-up capital for a business goes into one of these investments: “fixed assets” (furniture, furnishings, and equipment), or “working assets” (inventory and working capital).
Despite the lack of capital, many entrepreneurs invest most of their money in fancy equipment and chic offices (expenses that a struggling company may well ignore).
This is a common mistake in decision making. Successful entrepreneurs invest as much as possible in working capital – which brings cash and sales – and as little as possible in fixed assets .
5. Is This The Right Time?
Timing can be key to the success of a start-up. There is a right time and a bad time to open a business, especially if your business is cyclical in nature or seasonally located.
Opening a retail space in your favorite shopping mall, or your own convenience should not be your reasons for starting a business. Rather, you should carefully plan for the months when the peak demand for your product ends.
6. Control The Cash
They say that cash-flow or flow of funds is the soul of a small business. That’s right. Your business will survive only as long as you have cash to pay your financial obligations. With limited capital, cash flow drives every decision in companies with few resources, and it may be the only way to navigate their start-up phase.
A key rule for entrepreneurs : only when you have enough cash can you even start thinking about the benefits. Many companies fail not because they don’t have enough capital, but because they fail to properly plan for the capital scarcity phase.
7. Drive Sales
Growing sales depends on several factors: the nature of the business, its location, the level of competition, and the intensity of marketing and promotion carried out.
The goal of every low-income entrepreneur should be to get sales immediately. If you have a bank loan or financed yourself with your credit card, for example, your creditors do not allow you to delay your payments simply because you are still in the process of developing your sales. They want to charge now!
So you need to boost the marketing of your business, perhaps with a few flyers this week, a small ad in the local newspaper the next, or by sending out newsletters and contributing articles to magazines, blogs or sites that your target market visits.
The key rule is to dedicate at least 2 hours a day to marketing . Learn about the steps you’ll take before and after opening to maximize sales and help the business accelerate sales growth.
8. Balance Your Sales And Profit Goals
Sales and profits do not always go hand in hand . Some entrepreneurs are willing to cut their benefits in an effort to improve sales. Often volume alone will not be able to make up for lost profits.
Try to keep gross profit at least equal to the averages for that activity. Strive to find the balance between a strong policy to capture sales without sacrificing necessary profit margins.
9. Be “Thin And Miserable”
A company struggling to get off the ground doesn’t need dead weights. Keep your fixed costs low and spend only on things that can substantially improve the essentials (in other words, invest, don’t spend…).
If you can still function adequately from your home office, there’s no need to rent office space downtown.
Avoid hiring a permanent employee if you can still manage temporary and seasonal staff.
Every dollar spent must be directly linked to income : spend a nickel (5 cents) only when you are sure that you will get 10 cents in return :-).
10. Master Financial Tools
As the owner of your business, you are responsible for the life and growth of your business. That implies knowing, not only the marketing or productive aspects of your business, but also the financial tools you need to manage your business effectively. Understanding the finances of your business will put you in control of its direction.
Although this may be unpalatable for some entrepreneurs, knowing the economics of the business will tell you where it has been, where it is going, and how fast it will get there.
Sure, you can hire an accountant or bookkeeper, but YOU MUST understand your cash flow, income, profit and loss statements, and break-even point. .