Have you recently received funding for your startup? Congratulations! That’s a huge milestone.
The next challenge you face is what to do with those funds. While opportunities abound now that you’re no longer bootstrapping it, stay focused on putting that money to work for your business.
Eventually, the day will come when you can spring for that cushy office chair or even that fancy office. For now, the priority needs to be investing in your own business.
1. Create a list of essentials
When your startup is in the trenches, it’s easy to stay focused on only the things you absolutely need. If you don’t pay for those necessities, you don’t progress. At the same time, once you do pay for those things, you usually don’t have much left for anything else.
Now that you’re funded, it’s tempting to throw that money around a bit, but hold off until you create a list of essentials for your startup. This list can include anything your business is going to need to make it through the first year.
To give you some idea of what we’re talking about, here are five common expenses that funded startups immediately put in their budgets:
- A CFO or accountant
- Legal counsel
- Tech support professional
- Branding services
- Customer support professional(s)
The good news is that you have a lot of options nowadays. You don’t need to hire full-time employees right away. You can also outsource some of your needs—like branding—to third parties, which means you get their expertise without the price tag of hiring an employee.
2. Understand your true technology needs
While there’s no arguing that better tech can make a better company, this shouldn’t become an excuse to splurge on new hardware and software your startup doesn’t actually need.
Instead, plan out what has to happen to hit your break-even point by the end of the year. Then, look at what the basic software and hardware requirements will be for each step. You don’t need to purchase all the equipment at once. Start with the essentials and only purchase more when it’s absolutely necessary. When deciding on software to purchase, look at what you absolutely need to run your business, such as accounting. Before making the purchase, review the accounting software licensing options to determine which is best for your needs and budget.
To make the most out of your money, spend it on technology that focuses on generating new business as well as supporting the customers you already have. Email marketing is the lowest cost and highest return marketing and customer service tool any new business has.
3. Create a safety net
Ideally, this will be the year your startup hits the break-even point. You’ll finally pull in enough profits to match your expenses and upfront capital investments.
While this is always the goal, it’s not always the case. There are a lot of variables involved in this first year and you can’t possibly control all of them. Despite your best efforts, 365 days from now, you may still be in the red.
One variable you can control, though, is planning ahead for this potential outcome. You wouldn’t be the first startup (or corporation, for that matter) to need an extra year or two before reaching profitability.
However, if you have a safety net of funds set aside, this will make your second year that much easier. Before spending a dime, name your essentials and then forecast a second-year budget, too. This will give you some idea of how much to save, just in case.
About half of new businesses fail within their first fives year. In order for businesses to beat these odds, they need to focus their efforts on generating new business and keeping overhead as low as possible. This provides a springboard to continually reinvesting in the business's growth.
Megan Totka is the chief editor for ChamberofCommerce.com. She specializes on the topic of small business tips and resources. ChamberofCommerce.com helps small businesses grow their business on the web and facilitates connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.