5 FINANCIAL RISKS STARTUPS HAVE TO TAKE
Everyone seems to be jumping on the startup bandwagon; people are coining themselves entrepreneurs in hopes of one day inventing the next Facebook or Pandora and becoming billionaires. We’re all familiar with the rags-to-riches stories many entrepreneurs experience, but not all of us understand the financial risks involved.
The startup life is brutal. Founders are expected to take extreme pay cuts and sacrifice certain luxuries in order to keep their startup afloat. In the eyes of entrepreneurs, putting everything on the line is what it takes to get ahead and succeed in the long run. Capital is tight and needs to be spent efficiently, but sometimes taking the occasional risk is necessary to get a project off the ground.
Here are five financial risks all startups should take if they’re serious about growing their business.
1. Minimize outside funding.
Many new businesses focus on securing capital from outside investors like venture capitalists, but before you seek out an investor you might want to consider pulling out your wallet. Dig a little into your savings and retirement accounts to acquire the necessary funds to get your business venture started. It sounds incredibly risky (because it is!) but you’ll be hard-pressed to find an investor who will invest capital into your startup if you haven’t put some of your own money in first.
2. Hire a tax advisor
Nobody likes filing taxes, but the last thing you want on your mind while running a business is wondering if you’re meeting your tax obligations every month. As revenue begins to flow into your company, there will be various taxes your business will need to file. Hiring a tax advisor, while it’s an additional cost, will ensure your startup is following all the proper tax regulations to stay compliant. It’s a small upfront cost in the grand scheme of things.
3. Pay your employees.
Recruiting your family members or hiring unpaid interns might sound like a great cost-saving tool at first, but remember that your long-term goal is to build a profitable business. It’s not enough to ask employees to forego pay in exchange for equity; if you’re serious about growing your company and keeping the talent you have, you’ll need to find room in your budget to pay your employees.
But keep in mind: Paychecks aren’t the only things employees are looking for in the workforce. “Compensating employees well is not sufficient as a single tool to retain talent,” says Leon Ginsburg, co-founder of Chairlift.io. “Today’s workforce generation also looks for employment with organizations whose talent-management and development processes are light, intuitive, meaningful and user-friendly.”
4. Bring your developers in-house.
It’s no secret that developing costs are expensive. If you’re building an online or mobile application, finding the right developers who are committed to your business will cost significant financial capital. However, long-term growth is virtually impossible without it. Outsourcing development needs can help in the short-term, but it’s not a viable option as your company scales. You want team members who are dedicated to your mission and believe in your vision; freelancers split their time between multiple projects and might not be able to focus on your needs 24/7.
5. Secure a physical office space.
You can’t work out of your room forever, and there comes a day when you have to invest in a proper office space. “It’s a terrifying task to handle because the implications are huge – it means your startup is actually happening, and the scope of responsibility increases tenfold,” says Trina Felber, CEO of Primal Life Organics, which develops Paleo skin care products. Further, because the future is always blurry, investing in an office space is a leap of faith. The rising popularity of co-working spaces has helped companies with rental costs, but it’s still an investment that will grow as your company brings on more hires. With that said, it’s also one of the most important investments, acting as a milestone for entrepreneurs.
Money is a big concern for the majority of startups, but there’s more to entrepreneurship than worrying about finances. Startups encourage individuals to learn and grow as business individuals, and that includes taking risks with your business’ finances. The majority of the time, we’re taught to save our money and spend frugally to maximize our personal capital, but there’s no playing it safe in the business world. If you want to get ahead of your competitors and stand a chance at making it in your industry, your startup needs to take a financial leap of faith.
Josh Felber a serial entrepreneur and high performance coach, focuses on helping people design, develop and deliver their passion and expertise to the world so they can have the time, freedom and lifestyle they want. He has co-authored two best-selling books, one with Brian Tracy and another with Steve Forbes. Josh is an Emmy award-winning executive producer of “Visioneer: The Peter Diamandis Story” and “The Rebound,” a documentary on the Miami Heat wheelchair basketball team. Josh has appeared as a guest expert on NBC, CBS, ABC and Fox, and his biography was picked up by the E channel. He is a contributor to Entrepreneur.com, Inc.com, Businessinsider.com and Forbes.com. Learn more at joshfelber.com.