5 Problems That Can Occur When You Have Insufficient Business Capital

by Townes Haas
9/23/2016 10:14:16 AM

Trying to start a business with insufficient capital is a recipe for disaster!

Insufficient capital may cause you to cut costs in areas where you should be devoting more funds. Here are the ways not having enough capital will hurt startups and what you can do to raise more money.

1. You will have to cut corners

If you do not start out with sufficient capital you may have to cut corners in areas that may detrimentally affect the startup. For example, you may have to hire a less than adequate office space that does not give your staff enough working area.

2. You will run the business into the ground

You may find that you spent too much in the first month of business or did not raise enough capital to go beyond a few months. As the owner of the startup you will have overheads, salaries and other costs to pay, you need to have enough capital to not only launch the startup but keep it afloat.

3. You may drift into debt

Unrealistic views on how much capital your startup will generate from business and how long it will take to acquire could land you in trouble. You may be barely breaking even, just able to pay your bills, costs and other people's salaries but you might not be able to afford to pay your own salary. Many startups take a year or two to get to the point of solvency; meanwhile if business owners cannot afford to pay themselves or their costs they may end up in debt.

4. You may not have enough money for the right talent

It may have been important for you to spend capital on the right technology for the state-of-the-art product you are developing, or you may have used funds to rent a locale in a prime location as foot-traffic was crucial to your success. However this might mean you do not have enough capital to hire qualified and capable personnel who are key to the success of your business. If you do not have enough capital to hire good staff it does not matter how great your product or location is, you will have difficulty getting your startup off the ground.

5. You will drive away your top talent

Staff need to work in an environment that is comfortable and offers them incentives to work hard. If you cut corners and have staff working in shabby surroundings for insufficient pay then chances are you will have a high staff turnover. Furthermore if you cannot afford to offer bonuses and other incentives to hard-working employees it is likely that your top talent will soon look for work elsewhere.

The good news is there are various ways to raise funding. In today's economic climate banks are increasingly unwilling to loan capital to startups. Crowdfunding has become increasingly popular in Canada. It involves raising funds by collecting many small amounts of money from a large number of people via the internet. The Canadian Government's departments and agencies also offer many financing options such as grants, contributions, subsidies, and loan guarantees. There are also startup competitions in Canada that can allow you to win capital for your startup.

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