For many small businesses, knowing what to do with newly secured capital can present quite the challenge. You might think, “Wow, all this money is here! Now what do I do with it?”
Something I encourage our entrepreneurs to do is start with forecasting. It’s important to see where you are going and how long that new cash is going to last. If you don’t have any idea what your cash leeway is going to be down the road, it’s going to be difficult to know how to spend it. Start to set some budgets for yourself, while looking at your business model, and say “Okay, if I spend X amount of money on employees, X amount on marketing, and X amount on advertising, how long is this capital going to last?” Consider your timeframe: your forecasting will differ if it takes six vs two weeks to see profit on your marketing dollars. For example, if it takes two weeks to turn profit, I suggest giving yourself at least a six- to eight-week turnaround in forecasting because things don’t always happen as planned. Sometimes you think it will take two weeks, and it actually takes you four, six, or even eight weeks. Give yourself a little more cushion than you think you’ll need.
Validate the sale
The next thing I suggest is validating the sale. Are people going to buy your product? What’s the price they’re willing to pay? Have you found customers? If you have validated your sale, then it’s time to start prioritizing the best ways to spend your money.
This prioritization depends on your product. Maybe your product sells really well on social media. In that case, you would tailor your budget around social media or around a marketing specialist. If your product doesn’t sell well on social media or Google Adwords, then tailor your money elsewhere. Maybe you need to focus on hiring the right employees—finding the right people and helping them really bulldog selling your product. Maybe you need to get top-notch people selling door-to-door or doing phone sales. Either way, start with the end in mind.
Forecasting at Fundwise
At Fundwise, we created a forecast for the upcoming six months, because in some cases it takes us six to eight weeks to turn revenue for some of our products. We decided we wanted to have six months of cash leeway, so we forecasted for the next six months and budgeted accordingly. We then budgeted the appropriate amount we could spend based off how long it took us to turn revenue. We overexaggerated how long it would take us to turn a profit on some of our advertising expenses and started there. It turned out that our product is something that can sell very well on social media and Google Adwords. We then invested our money into hiring the right people and spending the right amount of our budget within each different channel of marketing.