Entrepreneurship is the lifeblood of the U.S. economy, offering business owners the opportunity to gain full control over their career and financial future. But with great opportunity comes significant challenges. Very few challenges can seem as daunting as starting and running a successful business.
If you’re an entrepreneur or aspiring business owner, it’s important to familiarize yourself with the most common challenges associated with running a business. By identifying these challenges, you’ll be in a better position to mitigate any potential issues before they arise. While we can’t predict the future, we can certainly prepare for it!
In this article, we deal primarily with the financial challenges associated with entrepreneurship. We’ll just assume for a moment that you’ve already developed a solid business plan and are ready to bring your product or service to market. If this describes your current situation, you might be asking, what’s next?
To answer that question, it’s important to consider the biggest financial barriers your business is likely to face in the months and years ahead. In general, these challenges can be broken down into the following buckets:
- Abandoning your career
- Access to financing
- Cash flow cycle
- Building a team
Abandoning Your Career
The first financial challenge of entrepreneurship is the opportunity cost of leaving your existing job or career. Are you willing to give up (or scale back) steady on-the-job income in exchange for pursuing your dream?
Answering “yes” may not always be practical, but if you do decide to make the transition, it’s important to do so in a responsible way.
The good news is this transition process can take as long as you need it to. There’s no hard and fast rule about when you should transition full-time to your new business.
Before taking the plunge, consider running your business on evenings and weekends until you have reliable cash flow that can help ease the transition. There’s a pretty good chance your new venture has a digital component (or is entirely digital for that matter), making it easier to manage your existing career and business in at the same time until you’re ready to make the full transition.
If your business cannot be done concurrently with your existing job, you should spend as much time as possible planning ahead so that you are ready to launch as soon as you quit your current position.
At some point, making the full transition to your new gig will be necessary if you hope to maximize its chance of success. But before you do, ensure you have your basic income needs in order.
Still unsure about whether entrepreneurship is right for you? Check out our blog post, Could You Be An Entrepreneur?, to learn about what it takes to become your own boss.
Access to Financing
Once you’ve decided to start a business, the question of how to finance it in an affordable manner will likely be one of your chief concerns.
Even experienced entrepreneurs struggle when it comes to funding a new business, which can make the challenge even bigger for newcomers. The one advantage experienced entrepreneurs have is a larger network of investor contacts. If this doesn’t describe your current situation, you’ll likely have to spend a lot of time networking to grow your pool of potential financiers.
While government programs, business accelerators and bank loans are also options, new entrepreneurs will likely be turned away unless they can provide evidence of steady cash flow and profitability.
Before seeking financing options to grow your business, it’s important to establish a track record in the market by landing clients and generating sales. Financiers will need to see evidence of a viable business before they consider funding its growth.
To learn about the financing options available to you, read about our custom-built business solutions. Red Door Capital helps businesses of all sizes obtain the financing they need to support the next phase of their expansion.
Cash Flow Cycle
It’s difficult to grow your business without reliable cash flow. Unfortunately, it can take weeks or even months to get paid for a product or service your business has already delivered.
Automating your accounts receivable using affordable cloud-based platforms can certainly help, but don’t expect to solve the problem of delayed payments without a lot of work (and dedicated resources).
This “distance” between delivering on a service and getting paid for it can lengthen your cash flow cycle, making it more challenging to manage your daily business expenses. (Of course, this challenge impacts certain industries more than others. Professional service businesses are more likely to face longer cash flow cycles than, say, retail.)
Red Door offers customized cash flow solutions for entrepreneurs and small business owners looking for more than just stop-gap solutions to building their brand. Check it out and see if it’s right for you.
Building a Team
Depending on how quickly you can grow your business, you may be in a position where scaling up your human resources is necessary. Often, the need for workers comes before your business is able to secure growth funding from banks or other investors.
Human resources can be very expensive. The good news is the Internet has made obtaining them much easier. Rather than hire and retain full-time employees, you may want to consider hiring freelancers or contractors. They are not only much more affordable, they are readily available through freelancing websites, professional networking sites and social media. This is one solution we are confident can help you overcome any HR burden your business faces in its initial growth phase.
It’s difficult to grow your business without an effective marketing campaign. Depending on your industry, word of mouth will only get you so far.
As you build your reputation, you’ll want to start marketing your product and service to your target market. Obviously, financing a large-scale marketing campaign likely isn’t an option for a new business owner, especially if they lack access to financing.
Social media can be a great tool for boosting your marketing and outreach campaign while managing costs. In fact, social media doesn’t have to cost anything at all if you do it right. If you decide to pay for social media advertising on Twitter or Facebook, it’ll still be much cheaper than hiring an ad agency. The results might not be comparable, but you’ll still gain traction.
Putting It All Together
Financing is one of the biggest barriers entrepreneurs face at each stage of the growth cycle. Luckily, the digital age has greatly reduced these challenges, giving business owners a greater ability to expand their operations and source the talent and marketing tools they need to grow.
When you’re ready to finance the next stage of your company’s growth, Red Door Capital will be there to help.
Are you looking to take the next step in launching a successful business? Check out our Partner Program, which puts you on the road to financial freedom with the support of the Red Door Capital team.