Starting your own business can be an incredibly rewarding experience. There may not be anything more exciting than holding your product in your hands for the first time – and as you start growing, you get to feel the joy of hitting important milestones like making your first sale or surviving a year in business.
While the good times are always cause for celebration, it is important to have backup plans in the event that you hit unexpected challenges. Here are a few reasons why your ecommerce business needs a solid backup financial plan.
You Can’t Predict the Future
Simply put, you don’t know what crises loom ahead. The U.S. Small Business Administration estimates that it costs about $5,000 for most microbusinesses (small companies around two people) to start. This number only increases as your number of employees increase and as your ecommerce business grows.
You never know what inconveniences will arise.
You may think that you have your expenses mapped out and have thought of everything, but you never know what inconveniences will arise. You may need to invest in extra marketing or contract additional legal or accounting services. Having multiple financial paths can make securing extra funding easier.
You Can’t Always Count on Your Funders
In the event of a crisis, you’ll likely need more capital to keep your business afloat – and sometimes, you might not be able to rely on your original backers. The people currently funding your business might not want to invest more until they recoup some initial profit or they might fear losing more if they continue to fund a struggling company.
Having alternative financial options can keep you afloat when your backers can’t.
Even if your funders completely believe in your ecommerce idea, there are outside factors to consider. Some startups are trying to raise extra money because they fear a looming recession. Whether or not these fears are warranted, they are preparing for an economy that can’t support them. Having alternative financial options can keep you afloat when your backers can’t.
You Feel More Secure with Diverse Financial Options
You don’t have to rely on one source of funding to launch your ecommerce business. In fact, you shouldn’t. In the same way that you can diversify your investment portfolio by selecting multiple industries, you can diversify your ecommerce investment streams with multiple financing options.
Along with venture capital and angel investing, look into securing small business loans from financial institutions. As you pay these liabilities back, you can grow your credit within the industry. You can also take out small business credit cards to cover immediate expenses (as long as you don’t let the debt pile up). With these various choices, you can spend what you need to make your ecommerce brand profitable.
You Need to Pay Yourself, Too
Did you know that more than half of startup founders forgo their own salaries when they start a business? According to the financial services firm Kabbage, 26% of startup founders didn’t pay themselves for two to six months, while 25% went six months to a year without taking a salary to keep their companies running.
Not every ecommerce founder has the luxury of foregoing a salary.
While most startup founders will do whatever it takes to keep their dreams alive (including relying on their significant other, dipping into savings, or living off ramen noodles), not every ecommerce founder has the luxury of foregoing a salary. Plus, when financial stress bleeds from your business to your personal life, you risk burning out and developing severe anxiety on both ends. A secure financial plan can make sure you get paid so you can focus your energy on running your business well.
You Want to Plan for Growth
When ecommerce brands first start out, they develop plans for survival. They want to make it through the first six months or the first year. However, as you get a feel for what you are doing and start to notice some successes, you need to develop a growth mindset. Now that you are learning the ropes, what do you want to do with them? Where do you want to go? Expansion means more profits, but it also means more expenses.
Having backup financial plans can help you scale when you are ready. For example, your small business credit card can help you grow your marketing game, or at least prepare to launch your next big promotion strategy. You can start thinking a few steps ahead instead of treading what to keep up with what’s happening now.
There are a million things that you will worry about as your brand grows – most of which are wildly out of your control. Focus on what you do have control over and take steps to prepare for the worst-case scenario. As long as you have a clear financial plan and backup options for when roadblocks hit, your ecommerce business can overcome almost anything.
What's your financial backup plan? Let us know in the comments!