The key to a startup success is knowing that the faster your startup can get from a business plan to revenue, the more likely it is the company will survive and succeed. Many new businesses measure their finances in terms of their “burn rate,” which is a number that indicates the rate at which venture capital is being used and not replaced through sales.
The burn rate problem can be resolved by using resources more efficiently while boosting sales.
Your new company should try to offset its costs as fast as possible through sales. This is called “customer financing” and it is a powerful way to alter your balance sheet in your favor. Sales are the mechanism by which all companies will survive long-term. The faster you can replace financing, investor support and capital with sales revenues, the faster your company can begin building long term equity growth.
If you’re selling a physical product often you can arrange terms with your suppliers so that they will provide 30 or 60 day financing. This should give you time to generate the sale and collect the money and then cover your inventory costs. In order for this to work effectively you need to keep your inventory levels at the bare minimum, ideally through the use of “JIT” i.e. “Just In Time” ordering. This involves precision timing and often computer integration with your suppliers.
A variety of companies require sophisticated IT infrastructure in order to ramp up operations. It could be for “Just In Time” inventory management as previously mentioned but it could just as likely be for e-commerce or document processing. Outsourcing some IT functions can be some of the wisest money spent during your new enterprise’s startup phase.
For instance if your company is based in Canada rather than hiring your own Microsoft Certified Professional to manage your Exchange Server, you could contract with a company like IT services Ottawa, to provide your e-mail services. Through economies of scale this will probably save you a bundle compared to trying to hire all these professionals yourself. In addition to cost savings it will also save in recruiting time and allow you to get your email server up and running in days compared to months.
In addition to IT professionals every company needs competent legal counsel and the services of a talented and knowledgeable accountant. These two individuals can provide your company with insights it would otherwise lack and further, provide your strategy team with legal and financial ideas they might otherwise overlook. If even one major legal or financial obstacle can be avoided by something as simple as retaining a couple of professional firms, the reward just might be a successful startup instead of an exhausting bankruptcy.
Success in business is far more often the result of where money is spent than how much is available. Taking the time to build a solid foundation for a company can set your management team at ease and allow them to concentrate on important topics rather than spending time putting out small fires in places they should never occur.
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