Starting and establishing your own business can be quite tricky. Markets are more competitive than ever, and new entrepreneurs often face lots of business-related issues in the first few years.
Building a brand identity is hard work to begin and even harder to maintain. Moreover, arranging capital to start your business, and effectively managing business finances, are some of the most challenging tasks many new entrepreneurs face.
While arranging capital for a start-up, an entrepreneur not only has to account for various expenses, they’ll also need a solid financial foundation on which to run their business till it starts generating profits. Before launching your business, make sure you have sufficient funds to support its growth.
Here are a few financial tips to help you build a secure financial foundation.
#1 Set your financial goals
Financial management is one of the most important, but also the trickiest, jobs in the business. If you want to attain success with your new startup, optimizing your finances is crucial. Hence, when you begin planning to start your own business, you should begin by laying down your financial goals.
It will take time to set up your business completely, to the point where it consistently generates a profit. To increase profitability, try to reduce your costs from day one. Using business (or personal) credit can add to your expenses if interest rates are too high to handle, so try to pursue credit lines with interest kept to the lowest rate possible.
#2 Keep track of expenses
Setting up your business incurs lots of expenses. Keeping track of these expenses is very important. Sometimes, new entrepreneurs fail to keep a check on their expenses, and as a result, they end up spending way beyond their budget. You may save yourself from such a situation by setting limits for your major expenses.
To reduce your financial load, you should account for all major expenses — like rent, taxes, raw materials, salaries, marketing costs, debts, credit interest, and so forth — well in advance. This can help you manage your finances for optimal and profitable growth. Pre-planning can ensure smooth cash flow for your startup.
#3 Keep business finances and personal expenses separate
A common financial blunder made by many new entrepreneurs is forgetting to create a wall between their personal and business expenses. In the early years of your startup, you may need to cover various operational expenses from limited cash flow. You don’t want to get into a crash crunch because you’ve made personal purchases using company account.
You should have separate bank accounts for your personal and business needs. This is also applicable for credit cards and loans, which can (and should) be taken out by businesses without risking the personal liability of the business owner.
#4 Pay yourself
Many entrepreneurs ignore the need to pay themselves in the early years. You might not be in a position to pay yourself a high salary, but you still need to give yourself a paycheck for your hard work. You need to take care of your personal expenses while building a business, and maintaining timely payments also help you in maintaining your credit score. You can use this credit score in case you need a loan for your business, but this isn’t generally advisable unless there’s no other way to secure funding.
#5 Buy insurance
Many entrepreneurs consider insurance an unnecessary expense. The truth is, insurance is a form of security for your loved ones, in case anything bad happens to you or your business. Get life insurance for yourself, and secure the relevant types of commercial and/or business insurance to protect against disasters or any legal dangers that might hamper your business.
You will need to spend some money, but the value of insurance is as a backup plan, potentially saving you and your family from losing everything.
#6 Diversify your income
Starting a new business involves lots of risks. It’s advisable to have other ways of earning money in place while you focus on entrepreneurship. Alternative income sources serve as a personal financial foundation to keep you from risking everything and can act as a backup plan in case your business doesn’t turn out as well as you expected.
#7 Invest in technology
If you want to succeed, investing in technology is a must. Always remember, in business, time Is money. Technology helps you save time, and thus money, by increasing your efficiency and productivity.
Accounting or revenue management software helps manage your finances more accurately and effectively. Using online software not only helps manage your accounts and finances, but when paired with accessible customer portals, can also help you establish an online presence for your business.
Advanced bookkeeping software not only keeps your records in order, it also helps you anticipate future revenue and expenses, helping you with all kinds of business financial decisions.
#8 Negotiate with your suppliers
A good entrepreneur tries to save money whenever possible. One of the best ways to save money is by negotiating with suppliers. You may negotiate for lower prices, some additional services, free shipping, a longer payment schedule, and many other concessions. In business, a penny saved is a penny earned. It’s advisable to read contracts thoroughly, well before meeting with your vendors. This can help you find opportunities for a good bargain.
#9 Create an emergency fund:
Emergency funds play a vital role in the success of new businesses. Your company’s sales are not going to be the same throughout the year. You may record huge profits in some months, while sales may not be that good in other periods. To address this fluctuation in income and ensure a steady cash flow during any off-seasons, an emergency fund is a must.
For an emergency fund account, you need to transfer some portion of revenues from high sales periods into separate accounts. This money can be used to pay expenses during your off months.
#10 Lease business equipment
While establishing a new business, you should try to keep your expenses as low as possible. All your decisions should be based on this simple rule.
Buying new business equipment can be very costly. Hence, you might want to opt for a rental or leasing option. This can save money, which can be used for growing your business.
#11 Debt reduction
For startups, debts act as parasites, hindering growth. Bad debts may turn into major issues if payments can’t be maintained, and they’re also likely to damage the company’s credit score. Hence, it’s essential to get rid of these bad debts as soon as possible. Clearing bad debts can also help your company establish a more positive and investable image for its stakeholders.
Running your own business can be very challenging if you overlook your financial requirements. Try to minimize expenses and keep regular track of your cash flow. Steady cash flow will reduce financial risk, and you can run your business more smoothly.
Sourav Paul is a blogger, marketer, and entrepreneur. He is the owner of blogs Iamcontenting.com and Businesstale.pl. Sourav is certified for SEO, Content Marketing, and Inbound Marketing, and he has worked with many organizations and clients to create many valuable and appreciated pieces of content over the years.