Small business startups need two things: A great idea and cash. Of course, there are other important ingredients for building a successful small business, like passionate co-founders and skilled employees, but without enough money, a business won't be able to get off the ground. In fact, according to a 2014 survey from CB Insights, running out of money accounts for 29 percent of failed startups, and another 26 percent is due to other money- or investor-related problems. If you're in the beginning stages of starting a small business, here are five money rules for avoiding cash-related problems:
1. Start with enough
The most important way to be successful as a startup is to begin with enough cash to keep you sustainable until you start making a profit. This requires a very detailed and well-reasoned business plan that takes all of your costs into account – everything from your office expenses to developing your products to ordering your business cards. Remember that starting with enough capital may not mean trying to convince investors to give you more money. Instead, look for ways you can develop your business and products the most while spending the least amount of money. You'll be more likely to attract investors who see you aren't planning to spend their money on trivial or excessive expenses right away.
2. Don't go overboard on overhead
One way to cut back on expenses is to look to your office overhead. The Facebook and Google offices may have crazy perks and amenities now, but they started with the bare minimum, and you should too. Invest in creating a space that you and your employees will enjoy working in, but avoid going overboard. A ping pong table or state-of-the-art espresso machine may be exciting, but what employees really need right now are things like office supplies (you can't have too many Post-It Notes!), nice desks and the technology necessary to do their jobs.
3. Invest in employees
Employees are one place you shouldn't cut back. In order to be successful, you need people on board who are willing to work hard in the beginning stages and who are great at what they do. This means being willing to pay them more (even if it means the founders' salaries take a hit).
4. Don't rely on profit right away
It takes most companies at least a year to start seeing profit, and even then there's a difference between what's called "ramen profit" and the amount of money needed to begin paying employees and taking over expenses without the help of your starting capital. Remember that running out of money is one of the top reasons startups fail – don't shortchange yourself (literally) by assuming you'll be making money within the first six months.
5. Pay little for marketing and public relations
In the beginning, your money should go to the bare essentials, which means paying employees, getting your product or service off the ground and building a client base. These days, because marketing is largely Web-based, startups can handle it themselves. Look for ways to use content, social media and SEO to your advantage, and avoid hiring a public relations firm (at least until you've become profitable).
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