At the early stages, business capital plays two roles; One is to help set up the business while the other is to keep the lights on long enough to test the business model and make necessary adjustments. It is advisable that the business founder finds enough resources for the second role as well. It would be safe to factor in six to twelve months’ worth of monthly operating costs for this role.
Once the business runs out of money, chances of trying out options that could keep the doors open and eventually guarantee profitability are brought to a complete stop, even when there are chances that the business could have survived and maybe scaled up. Once the doors of the business close and lights go off, nobody can ever say with certainty whether it was going to be profitable or not.
For Enquiries and Additional Information
In other words, it means that since all new businesses succeed only after cycles of actions which ‘educate’ the business owner on what works for his customers, lack of financial resources will abort this process, forcing the business to close ‘prematurely’.
It also means that since the capital to start the business most probably came from savings, personal assets, friends or family, chances of reverting to the same sources with similar success are close to nil. Other sources are likely to be even more unyielding.
For Enquiries and Additional Information
This way, running out of money could lead to a state similar to permanent disability, at least as far as entrepreneurship is concerned, or at the least, a state of paralysis for a long time. The solution can be found in a very efficient and strategic management of the burn rate, which is the money we spend on the business before it starts making money. Because the longer the business keeps its doors open, the higher the possibility that the business owner will find that formula that he’s been looking for!
See also: The MODEL Strategy: A Predictable and Transparent way of running your Business
