Entrepreneur Finances: 4 Major Money-Drains on New Businesses

Entrepreneur Finances: 4 Major Money-Drains on New Businesses
  • Opening Intro -

    Though becoming an entrepreneur has the potential to make you wealthy down the road, the first year or so after starting a business can be extremely financially stressful.

    Funding your business and your life while waiting for profits to begin coming in is difficult, and in some cases can even wreck burgeoning businesses.

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Here are four of the top financial drains that new entrepreneurs should expect to encounter.

Material Costs

If you’re offering a product or a service that requires physical goods, such as a construction service, material costs will certainly play a major role in your business’s early finances. Your money will be tied up in materials until either your product sells or you invoice your service.

This means that you may not have much extra money to spare for business growth or to pay yourself. The best way to approach this problem is simply to accept that money will occasionally be tight and to get through this phase as quickly as you can. If possible, try to buy your materials in bulk to get a better unit price and achieve greater profitability.

Marketing

In any new business, you’ll need to allocate some of your money to promote your products or services if you want to become successful. To stretch your marketing budget as far as possible, consider using digital marketing. Social media marketing, in particular, offers a great value in terms of its ability to reach interested customers for a low cost.
The best sites for social media marketing tend to be Facebook, Twitter, Instagram, and Pinterest. Your best options will depend on your particular industry. An interior decorator, for instance, will probably do best on visual-based sites like Pinterest and Instagram.

Labor Costs

As an entrepreneur, you know that you’ll have to pay workers to help you build your business. The largest costs of labor, however, don’t end there. Insurance, payroll taxes and other incidental expenses will have an impact on your cash reserves. There will also be large, unforeseen expenses, such as workers compensation claims. Workers compensation claims can have a massive effect on your capital reserves, and firms like Oxner + Permar, LLC., may bring cases against even very large businesses.

Real Estate

One of the largest costs a business will incur in its early days is the cost of a place to operate from. You can either buy or rent a building, but either will be fairly expensive. Generally, it’s advisable for new businesses to start out by renting. Once your business has grown into a more mature state, you’ll have a better idea of your long-term space needs and will therefore be able to buy a building that is suited to them.

Starting a business will be a financial challenge, but you should be able to succeed as long as you know what to expect. Keep these four expenses in mind when planning to start your business, and you’ll have a better idea of your funding requirements.

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