By Doug Bonderud, writer and regular contributor for OnDeck
The rate of small business failure is trending downward, Entrepreneur reports. The trend stems partly from savvy business owners who do their homework before putting their product or service on the market. It can also be attributed to the rise of accessible, cloud-based eCommerce tools and accounting solutions, which make it possible for even home-based businesses to enjoy global impact.
The opportunity for success has never been greater than it is right now. But there’s a problem: While you’re long on ideas, you’re short on cash. So how do you start making money when you don’t have any to spare?
1. Go Bare Minimum.
Once you’ve got a great idea and credible business plan, it’s tempting to run out and spend money on all the “essentials” that other small businesses have, like office space or computer hardware. But here’s what you should be asking yourself: Do you really need these things to be successful?
Consider physical office space. Depending on your needs, you could pay anywhere from US$500 to US$2,000 per month for a moderately sized place to call headquarters. But is this really necessary? In a world of online ordering and easy shipping, is it possible to run the business from your home? Other considerations here include capital expenses such as new computers or office equipment and more peripheral spends such as business cards. In every case, ask yourself the same question: What’s the bare minimum?
2. Leverage Low-Cost.
If you’re manufacturing a product, you need a reliable supplier. If you offer a service that includes an online component, you need solid support. But here’s the thing: You don’t always have to pay top dollar. Option one is to negotiate. Don’t assume a vendor’s price is final, and be on the lookout for added services or solutions you don’t need. Pare down to the absolute bare bones offering and then try to reduce the rate a little more. For many owners, this means getting out of their comfort zone to hold a firm line, but it is often worth it in the end.
Another option? Find local providers to help meet your needs. For example, a Texas-based home business that produces baby sleep sacks got by during its first year by leveraging the talents of local seamstresses to supplement production until revenues outstripped operational costs by a wide margin. There’s no shame in looking local to support hometown suppliers and keep costs down.
3. Be Realistic.
Don’t kid yourself: Many startups still fail between the three- and five-year mark. Why? Because they don’t set realistic goals. If you’ve enjoyed a solid six months to a year of sales, you might want to forecast a steady growth for revenue—rather than an exponential increase—and budget accordingly. In addition, be prepared to do most of the work yourself for the first few years. While hiring full-time employees may be the eventual goal, you can significantly reduce overhead by being the only staff member on payroll—and by working as long as it takes to get your business off the ground.
4. Embrace Expertise.
Tell everyone you’re an expert. Don’t hesitate, don’t equivocate: Believe it and vendors will be less likely to take advantage of your naiveté. Next? Actually become an expert. Do product and market research in your field. Go to conferences. Read articles. Know everything about the current market climate and its likely next direction. Not only will this increase your overall confidence and performance, but help reduce the risk of making poor budgetary choices.
5. Connect With Your Network.
It’s probably a good idea to avoid asking friends and family for money since they’re not business experts and would (understandably) want a say in how the business is run. But there’s no harm in asking your social circle to help out with some sweat equity even if you can’t pay very much. Here, goodwill goes a long way, even if it’s just to get your first order out the door or handle customer inquiries over the holiday season. Express your gratitude freely and often, pay back family and friends when the business gets on solid ground, but don’t hold back from asking for help when you’re in the early stages.
6. Find Financing.
You can’t do everything for free. Sure, you’ve passed on office space, found a local supplier and tapped friends and family, but you still need to bankroll some startup costs. Here are a few options to consider:
- Crowdfund: From Kickstarter to Indegogo to GoFundMe, crowdfunding sites are one way to share your idea with the world and see what kind of traction it generates. Ideally, you get a large sum of cash from thousands of individual investors. Just make sure to under-promise and over-deliver.
- Try the SBA: As noted by Fortune, if you’re not able to secure a loan through your local bank, try the Small Business Administration. They don’t actually issue loans, but they will offer potential loan guarantees to approved lenders if you pass their screening process.
- Private Loans and Lines of Credit: Opt for online small business lending companies that provide either term loans or lines of credit to help get your business off the ground. Many now offer a speedy approval process and quick funds delivery.
- Bootstrap: The classic small business investment strategy: Fund it yourself or through friends and family. There’s risk, sure, but you keep total control.
7. Prepare for Problems.
Sometimes things don’t go as planned. That’s what happened to Rickshaw Dumpling after their first successful brick-and-mortar location opened; they opted for a second and almost bankrupted the business. A quick pivot to food trucks saved the fledgling dumpling empire, but it was a close call. Be prepared for the same kind of quick moves as a small business. Solid revenue doesn’t always guarantee future success. Once things start going well, always keep some money tucked away for unexpected legal costs, hardware replacements or staff needs.
8. Stay True.
Ultimately, the goal is to run the small business you imagined, not simply the one that’s possible under a limited cash-flow scenario. While minimal money is the common starting point for many small businesses, periodically take the time to reevaluate: If you’re enjoying steady success, does the business reflect your ultimate intention? If not, consider your priorities: Is money or message your end game?