Sanjay Singhal, Canadian venture partner at 500 Startups, sits down with the FreshBooks Blog and offers candid advice about how to steer clear of small business bankruptcy.
As an entrepreneur and investor, Singhal has started several companies and invested in more than 20 startups. Most recently, he created Author’s Republic, a self-publishing audiobook portal.
Singhal is open about his past mistakes, including his personal experience with bankruptcy. Here, he shares the key steps he’s learned over the course of his career to avoid small business bankruptcy. Watch the video and read the complete transcription below!
I’ve gone bankrupt. It sucks. I’ve had successful companies; I’ve had failed companies. A total of five companies. Here are a few of the things that I’ve learned along the way.
Step 1: Only Spend Money You Have
Small businesses hire too many people. It’s really important to match your staffing to your revenue.
A venture capitalist’s, a vendor’s or a client’s promise that “we’re about to send you cash”—none of that’s money. The fact that the word money is in it doesn’t mean it’s money. A line of credit is actually cash that you have because you can use a card. You can go to the bank and actually draw funds against it. Cash is money. So, something that you can actually see in a bank account, something that you can see in a stack on your desk—these are things that you can spend.
Step 2: Hire Superstars
Small businesses hire too many people. It’s really important to match your staffing to your revenue. Be ruthless about payroll because superstars are worth five times what a regular employee is worth. So, the best way to make sure you get the best employees is feel free to go ahead and hire more employees—put them on probation. If they don’t work out, fire them. Remember that you’re keeping that person from another job where they’re going to be happier, where they’re going to have a chance to be a superstar. They’re just not the right person for your company.