No business can survive without sufficient cash flow. If you fail to invest continuously in your company, your dreams of self-employment can quickly come to a grinding halt. So if you want to increase your chances of beating the odds that doom many new businesses, you’ll need to develop-and more importantly, utilize-your frugal sense.
“Our business is alive and well because we are financially conservative,” says Gwen Mizell, co-proprietor of AAmerican Marketing Systems Inc. in Memphis, Tennessee. She and her co-owner husband, Steven, started the security firm in 1983 after eight years in corporate America as a bank associate branch manager and electrical engineer, respectively. “We even kept our jobs on a part-time basis to save as much money as we could,” she says.
Newly minted entrepreneurs must resist the urge to spend excessively. In fact, they may actually need to live below their means until the business stabilizes and brings in a sizable profit. Sacrifice is the key,” says Mark Perry, a partner of Alston & Perry, a CPA firm in Piscataway, New Jersey. “You have to go without personal luxuries if your cash flow can’t support them.”
In the meantime, the Mizells made a commitment to cut back on miscellaneous spending. They gave up trips to the movies and sporting events, and cut back on vacations. By the time they quit their jobs five years later, they had saved about $20,000 to reinvest in their company. “You have to take care of the important things first,” says Steven Mizell. “When it comes to everything else, you only buy what you can afford without taking away from the business.”
Setting financial goals for your business is easy. “Planning for an unforeseen turn of events, however, tends to be a big problem for new entrepreneurs,” says Perry. But a frugal approach to finances will get you through the rough patches and keep your business going strong. Here are some ways you can develop an economical outlook:
- Cut back. Avoid spending money on items not essential to the maintenance of your business and home life. This means eating out less and taking fewer vacations and shopping trips.
- Use less plastic. You don’t want to use the money you should he reinvesting in your business to pay off high-interest debt. “Try to limit your credit card use to emergencies,” says Perry.
- Be patient, Many entrepreneurs want too much too soon. Rome wasn’t built in a day, and your business won’t be a success overnight. Be assured that your diligence and sacrifices will pay off in the end.
- Use financial services. If you’re not disciplined enough to handle your finances, seek an advisor. A good one will help you keep accurate records of your business and personal finances, and might even save you a few extra dollars.
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