Creating a startup is neither easy nor inexpensive. It is going to definitely cost you, and likely, more than you anticipated. In all likelihood, there are things you simply did include in the budget. Like a building project big enough to require a general contractor, estimates are missed. And things tend to spiral out of control in a hurry. Here is a brief look at some of the budget items that tend to sneak up on new entrepreneurs;
The Fine Print
Business owners are a lot like anyone else when it comes to buying expensive things, like, say… businesses. They get distracted by the bold, bullet-point features. They get so excited about the bold print line items, they forget to take careful stock of the fine print. A site specializing in business plans lists “The Top 5 Hidden Costs of Starting a Business” as follows:
- Licensing Fees
- Surety Bonds
- Professional Fees
- Technology Costs
Often the difference between a professional contractor and a handyman is licensing and bonding. Leasing a building for operations is part of the bold print. The fine print is the amount of money it will cost to keep the lights on, the technology powered, and the climate controlled.
Technology often suffers due to budgetary penny-pinching. This is how companies end up with underpowered systems that are quickly out-of-date. The business owner purchases what she considers to be the absolute least system capable of doing the job. Those workstations become the bane of the employees stuck with using them. The client also suffers as someone has to constantly apologize to them for the systems being down, or slow.
What to Do When the Funds Run Dry
If you find that the startup capital ran out before the profits started rolling in, you are not alone. This is a common problem, and likely the main reasons why startups fail. The good news is that running out of money is not necessarily the end of the line for your business. Here are two sources of revenue still available to you:
You have likely heard of accounts receivable. But outside of a business course, you may not be familiar with factoring services. Contrary to how it sounds, it has nothing to do with math tutoring. Factoring is the process of purchasing accounts receivable for a lump sum less than the total receipts.
It is the same type of thing that happens when firms offer to pay you a lump sum for a judgement, or installment payment of some kind. If you win a court judgement of $10M, it could be tied up for years before you see a penny of it. However, a firm might offer you $3M to buy out the judgment, leaving them to collect the sum the best way they can. $3M now is better than $10M maybe never.
Factoring services do that for accounts receivables. If you have a great deal of money tied up in uncollected accounts, a factoring service like Universal Funding’s factoring services could be the difference between getting a second wind and closing the doors for good.
It might surprise you to know which businesses are running solely off of venture capital, never having made a profit. Spotify is one of the first that comes to mind. Until a few years ago when they decided to go public, Twitter would have topped the list. Even now, they don’t make any profit.
Companies, like the ones that produce Snapchat and Instagram live off of venture capital until someone with deep pockets comes along to buy them out for a ridiculously large amount of money. There are things your startup can do to attract venture capitalists. Just know that an infusion of venture capital is a temporary solution. It is no replacement for a profitable business model.
Finally, the biggest unconsidered cost of doing business is the first failure. Being a successful entrepreneur is not a one and done proposition. Your first attempt is likely to end in failure. You can’t let that first attempt crush you. It is the thing that leads to success down the road, and is just part of the natural process of doing business.