Building your business can feel like a rollercoaster when you’re in the startup stage. Financial struggles can be particularly challenging and even painful. However, nearly every successful business owner has experienced cash flow problems and other financial setbacks at some point before arriving at a place of stability.
The key to overcoming financial challenges is not avoiding them but rather developing strategies to navigate the circumstances while staying focused on your vision.
Here are some pro tips to break through some of the most common financial struggles startups face.
1. Don’t jump into bankruptcy (but don’t rule it out)
It’s important to know that while bankruptcy is an option to press that financial reset button, it’s not always the best choice for a startup. Whether or not you should file for bankruptcy will depend on your circumstances, and you should consult with a bankruptcy attorney before making a decision. However, there are several important considerations to make before finalizing your decision.
For most startups, bankruptcy is only ideal as a last resort when you have unmanageable debt, liability concerns, or no prospect of recovery. For instance, Chapter 7 bankruptcy will typically discharge all of your debts to give you a clean slate. However, all of your assets will be distributed to your creditors, and it will take a long time to rebuild your business. You need to be certain that you don’t have another option but don’t rule it out if you’re struggling. Sometimes, not filing for bankruptcy can do more financial harm than good.
2. Pay attention to market shifts
One of the most important things you can do is hire the right advisors to help you manage your money. According to Carta, 254 venture-backed startups went bankrupt in the first quarter of 2024. That’s seven times higher than 2019 bankruptcy rates. Clearly, there’s a problem, and while it could be related to a company’s struggle to obtain funding, there’s something else happening.
Markets are shifting in ways that we’ve never seen before. Old business models are no longer working in many industries, and there are probably some changes you need to make to your business to succeed. For instance, more people are working from home, which drastically impacts physical retailers since people aren’t already driving around. People need to plan purchases that used to be worked into their daily routine, and many choose to use Amazon or other online stores, even for groceries.
One small change – like the popularity of remote work – has the power to alter spending habits in any industry. Do some research into how your market has changed and see if you’re allocating your funding according to their current needs. If you’re grappling with financial struggles, you might be investing in the wrong type of marketing or activities that are no longer profitable in your market.
3. Identify non-essential expenses
Getting rid of non-essential expenses can make a huge difference in your cash flow. For instance, most businesses are paying for software nobody uses, extra “seats” that aren’t being used, and top-of-the-line applications with features that aren’t necessary. Some of this is easy to spot and cancel. However, before you start eliminating things, thoroughly investigate each expense first. What may seem like a frivolous cost to you could actually be the reason a particular team is effective and productive.
For example, say you’re paying top dollar for your email marketing platform and getting a great ROI. There are plenty of other email marketing systems you can use that will cost you half as much, but they don’t offer advanced features that your marketing team needs to track purchases and clicks, automatically drop people in and out of sequences based on conditions, and split test subject lines. Suppose you switch to a new platform to save money. In that case, your marketing team will not only have to spend days or weeks recreating every email and every sequence, but they may be unable to replicate advanced tracking and automation. The result will be even more money lost.
4. Consider crowdfunding
If you can reliably do it and keep your promises, crowdfunding can be an amazing way to generate the capital you need.
Setbacks don’t have to be destructive
While financial struggles don’t define your potential, they can certainly put a damper on your ability to reach your goals. Implementing the right strategies with the help of a financial advisor can help you transform your financial struggles into sustainable growth. The key is to remain adaptable, be willing to learn from your setbacks and make the necessary changes no matter what.
Photo by Adeolu Eletu on Unsplash
