6 Tips to Avoid Personal Debt When Starting a New Business
When starting a new business, it takes money to buy the necessities of a new business. You need a website, office space and equipment, and many other expenses, depending on the business you are starting. But where do these funds come from?
According to a study conducted by Business.org, 89% of small businesses have used their personal debt to finance their business. “These debts range from $5,000 to over $100,000, and 38% of entrepreneurs say their personal credit score has dropped since starting their business,” Business.org says.
These high debt levels are attributed to the inability to obtain start-up financing, and women find it more difficult to obtain new financing for their businesses. According to nerdwallet.com, “Businesses run by women are less likely to be approved for a small business loan than those run by men, according to the Federal Reserve.”
Nerdwallet.com has also listed small business loan options for you to explore. The alternative to seeking outside funding for your business is to get started.
Here are six ways to start your business:
1. Focus on bringing in paying customers first
The biggest mistake startups make is focusing on activities that don’t generate revenue. You need to create sales early on to make money, so focus on sales and get paying customers early on.
2. Prove your offer
Serving multiple paying customers and having customers happy with your offer is a way to prove or validate your offer. This is an essential step that should not be missed because you will put your business out of business if you try to sell an offer that people do not need.
3. Invest your profits in business development
You are ready to invest in websites and other things that will support your business when you have a proven offering and paying customers. You use the profits you earn each month to reinvest in the business to develop marketing, advertising, and other services that will increase business visibility and attract more paying customers.
4. Hire a team when you have 3-6 months of their salary in cash reserve
Don’t rush to hire a salaried team. You can work with many consultants until you are ready to have a payroll team. Often business owners feel they need their team right away, but you don’t want to rush that engagement.
5. Don’t try to do everything at once
You don’t have to have perfect marketing, complicated sales funnels, or fancy websites. You need a proven offering that sells, then you can grow and scale your business on a solid financial footing.
6. Don’t chase shiny objects
The internet is full of business coaches and consultants who want your money and will offer you unrealistic promises of overnight success to get it. Resist the temptation and grow your business one step at a time. Your wallet will thank you.
The bottom line is that there are pros and cons to funding your business, whether from outside sources or from the start-up. Whichever you choose, it would help if you were comfortable with the method chosen. However, starting a business and not taking on external financing allows you to have financial control of your business and not give up any operational control.