Biggest Financial Challenges that a Startup Faces

Even though trying to simplify one’s success or attribute their failure to a single bad move is not realistic, you need to understand that finances are most commonly a determining factor. After all, the very point of running a startup is profit; otherwise, you would be running a non-profit organization. This, however, is a principle you need to focus on from day one, even though it’s unrealistic to expect you’ll be seeing real profit anytime soon. With that in mind, here are several of the biggest financial challenges that a startup faces, as well as several tips on how to deal with these issues in the most efficient way.

Retaining profitable customers

The first thing that a startup needs to do is learn how to recognize potentially solvent customers and focus on retaining them. For a lot of people, your product will be a one-time buy but, if you’re skilled enough, you can persuade 8 percent of your regular customers to make about 40 percent of your entire profit. Seeing as how these regulars will take the bulk of your marketing team’s effort, you get to maximize your profit with minimal investment. For this, however, you need to adopt some of the best post-sale follow-up techniques and improve your customer targeting system.

Managing cash flow

The second major problem that startup often face is the inability to maintain a healthy cash flow. It takes a fortune to simply launch a startup and it takes an additional year and a half until it’s completely self-sustainable. This means that your company might undergo substantial financial issues you’ll be forced to tolerate in order to stay afloat. For instance, you might be forced to withhold employee bonuses in order to cut down the overhead, which directly results in a drop in morale, productivity and many other things.

A healthy startup is one that can afford to burn cash. They need to be able to innovate their equipment, reward their regular customers and expand their operations. Therefore, the key to staying afloat means having a healthy money reserve that you can dip into when the need arises. Sometimes, it’s even worth getting a loan in order to ensure you have enough working capital. Even if your credit score is not an exemplary one, you can always look for online lenders providing bad credit loans to those without an admirable rating.

Having a huge overhead

The next thing you should worry about is the overhead. How much profit you get to retain depends on your income but also on your spending. Paying too much for your delivery system is a situation that can easily be remedied by outsourcing it or by hiring a skilled fleet manager. Paying too much for utilities can be fixed by re-examining your power bills and negotiating with your utility provider. At the very end, the single largest issue on the list should be one of supplies. Try to negotiate for a quantity discount and, in this way, ensure that the quality of your products/services remains on a satisfactory level.

Avoiding client dependence

Earlier on, we’ve discussed the fact that a small nucleus of regular, financially potent clients may be enough to control the entire profit of your organization. Sadly, this is not necessarily a good thing. You see, once your company comes to rely on a single customer too much (especially in B2B interactions), what it means is that you lose leverage in your dealings with them. They can threaten to leave and you can find yourself in a situation where you have no other choice but to agree to their blackmailing. Therefore, diversifying your client base needs to become one of your top priorities.

Conclusion

Learning how to overcome these four challenges is vital when it comes to the solvency of your startup, its fiscal responsibility and its future. Ignoring some of the above-listed tactics may backfire instantly (lack of cash), while others may take years to manifest themselves as a problem (client dependency). Overall, ignoring the potential trouble that they can make is never a wise choice.