The youth of today are more inclined towards starting their own business in comparison to opting for the regular 9 to 5 office jobs. However, a certain amount of capital is required for starting the business, irrespective of the niche that it belongs to. Even after taking a business loan and starting the business, an important reason as to why most of the new businesses are failing is because of the improper manner of debt management. It is crucial that you manage the business debts if you want your business to progress further. Every year numerous businesses are established, but 50% of them fail because the funding options are limited. It becomes very difficult to keep startup debt free if there are not proper guidelines for managing the financial records.
Given below is a list of the tips that you can consider if you are interested in keeping your startup out of excess debt and you want to build the business on an extremely solid foundation.
How to Build a Debt Free Startup From Scratch
Ensure that you are not borrowing money until and unless it is absolutely necessary
The first and most important way of avoiding business debt is to ensure that you are not borrowing money. An important truth that you should definitely know is the fact that most of the businesses do not require a huge amount of money right when they are starting. In fact, numerous small businesses have started with $5,000 or less and they have been able to make their business stand successfully. It is a good idea to use the funds from personal savings, sell personal assets, or opt for loans from relatives and friends in order to start the business. It is a good idea to stay away from the creditors or the financial institutions for taking business loans.
Living lean at the beginning
You need to create a list of the daily expenses that you have and ensure that you are prioritizing them. You have to list the fixed expenses, which include the car payments as well as mortgage, along with the numerous variable expenses, which include the utilities, healthcare, food, and insurance. Next, it is crucial that you determine the total money, which will be required for maintaining the fixed expenses. Finally, it is your duty to understand if it is possible to reduce or completely eliminate the unwanted variable expenses to keep your startup debt free. You need to understand that if you are capable of trimming the personal expenses; your business will not need to keep producing revenue for keeping you afloat right at the beginning.
If you decide to borrow, ensure that you are getting the appropriate loan
It is crucial that you carry out thorough research and know about the different loan options that are available to you before you decide to borrow money for your startup business. You need to consider the different low-cost solutions like the loans of low interest from the credit union or the banks before you are considering the high-interest loans. Moreover, it is also crucial that you consider the total collateral that you need to pay for putting up with your loan. You need to understand the total amount of money that you are going to risk in order to get more capital for your startup business.
Use borrowed money for the various revenue generating purposes of your business
If you are borrowing money, it is your duty to ensure that you are making use of it extremely wisely. It is advised that the funds that you have borrowed from the financial institutions like credit unions or banks, should be used for the various revenue generating activities of your startup business as well as the essential expenditures.
You should ensure that you are not borrowing money for the assets that are depreciable, like the furniture of your office or your computers. Do not spend on anything that is not going to bring money to the bottom line directly. It is true that proper pieces of equipment, as well as, amazing furniture is definitely mandatory but it is not going to matter at all if there are no customers. You need to stop spending money on the items, which are going to serve only as a beautiful window dressing. Ensure that you are making use of your loan amount only to focus on the various business aspects, which is going to help in the growth of the business eventually.
Reduce capital expenditures
Numerous experienced entrepreneurs advise that a young startup owner needs to take the bare bone approach for running the startup, especially during the very first year of the business. You need to purchase only the things that you require and ensure that you are opting for the used pieces of equipment, whenever possible.
It is also a good idea to consider starting work from your home or you can also rent particular office space, as opposed to investing in the commercial real estate, which is going to be extremely costly. You can also outsource services in order to avoid the purchase of specialized equipment, especially when you have just started your business. For instance, there is no requirement of printing the color pages frequently, and hence you do not have to bother purchasing the color laser printers. You can instead outsource the occasional needs to the reputable printing companies.
Creating various income sources
If you feel that your business has still not started bringing in the expected revenues, it is a good idea to take up a part-time job or develop the various other income sources. You can opt to offer various services, on the different reputed freelancing websites in order to run a debt free startup company. The extra money, which you are going to make, will be helpful in covering the expenses, especially during the time when your startup business is not in the position of generating revenue.
Creating a plan for eliminating debt
If you have already taken a business loan, it is crucial that you try to clear the debt as early as possible. You can start by allotting a certain portion of the monthly profits for your debts, until and unless you are completely free from debts. If you are having debt consolidation thoughts, you can choose a reputed debt consolidation organization for consolidating all your business debts.
When you have just started your business, it is understandable that it is going to be difficult for you to tackle the finances and run your startup debt free without any form of hindrances. However, if you consider the tips that have been mentioned above, it will be easier to keep your startup business free from unwanted debts.