When you are starting your own business or even running a side hustle that you want to someday turn into a full-time hustle there is a big question of money. It’s important to have good cash flow as you prepare to go from employee to entrepreneur. For many people, taking the leap to leave your day job to pursue your dreams is scary, and you should plan not only from a business standpoint but also from a financial standpoint before you make a move. I am a big believer in being prepared. I don’t think it makes sense to take unnecessary risks, especially financial ones. Now, I’m not saying that you should keep planning and procrastinating by moving the goal line, but for most people, knowing that they are somewhat financially prepared makes pursuing your side hustle or starting a new business a lot less scary.
I think most people fall somewhere between two camps when it comes to finances. Either you don’t want to leave your 9-5 current job until you are matching your salary with your side hustle or you want to have a healthy (i.e. 6 months) emergency fund saved up before taking the leap OR you are ready to pursue your new/side business full-time but you have debt (credit card, student loans, car payment, etc) that requires you to make large monthly payments which makes you nervous or unable to leave that steady paycheck behind while you still have that debt. You may fall completely in one camp or you may be somewhere in between the two.
Basically this issue equates to the fact that you need more cash flow. You need to increase the amount of money that is not going towards running your business or living expenses. There are two main ways to increase your cash flow, cutting costs or try to increase sales.
How to Increase Cash Flow:
This is the fastest change you can make and if you haven’t already, I would highly suggest making a budget and tracking your spending. I use Mint and it’s a great tool to help you track not only the money that’s going out, but the money that’s coming in as well. Just three categories make up for 62% of most peoples’ spending. Those three categories are housing, transportation, and food. If you can decrease your spending in these areas, you are well on your way to financial independence and the ability to leave your full-time job to pursue your passion (if that’s what you want)! These savings will help you build your emergency fund or pay off that debt MUCH faster and will take away some of the financial pressures that keep many people working in jobs they hate for way too long.
This one is pretty straight forward. You need more cash flow…so you need to sell more, without increasing your operating costs by too much. You are basically increasing your profits. You could try to sell more of your product or take on more clients BUT you can also raise your prices. There’s pros and cons to each of these strategies. To sell more, you’ll need to buy more inventory or get more clients, what if you don’t have the bandwidth to take on more clients? Well, then you may need to try raising your prices. You’ll need to do a bit of competitor analysis and look at the marketplace before you do this. You may realize that you can easily raise prices without much pushback, or you may find that customers or clients aren’t willing to pay more, thereby actually losing you sales and profits. This is a decision that every entrepreneur and company has to make at some point or another, better to tackle it for the first time earlier rather than later!
Personally, I always go for the increase sales strategy. That is not only because I live in New York and it’s really difficult to cut costs without becoming a total hermit, but also, you’re only going to be able to save so much by cutting costs. Increasing your sales by either selling more products, getting more clients or raising prices, you’re limits are simply on the bandwidth that you have to execute, which can always be scaled. You can implement routines and strategies to be more productive or get a virtual assistant which further increases the amount of time you have to sell your product, hopefully without increasing costs too much. There is really no limit on the amount of sales you can get each week, month, and year, the limit is your choice and ability to deliver which is a pretty great problem to have! Plus, this strategy means you don’t need to have 57 roommates or eat Ramen noodles every day in order to meet your financial goals to pursue your hustle.
Have you tried cutting costs or increasing sales to help you launch your business? What strategies did you use?