Running a business is never easy.
For one, you need to innovate. Otherwise, your competitors can get ahead of you. Second, you need to keep your employees’ well-being in mind. That’s because they are the backbone of your company. Lastly, you need to manage your business finances well if you want your venture to thrive.
Mind you, 6 out of 10 businesses fail within the first ten years, and one of the reasons is poor financial management. If you do not want to be part of that statistics, you need to keep the following financial tips in mind:
Planning is Key
If you don’t want to fail in the first hurdle that you encounter, then planning is vital. Ideally, having a written business plan during your first few years as an entrepreneur can be particularly helpful.
The entire process of researching and writing your business plan also lets you know more about the market you want to serve. Your research can also give you an insight into the products and services you can provide and how you can let them know that it exists.
Once done, you can use your business plan to attract potential partners. Mind you, investors such as Michelle Dipp ‒ a female leader in venture capital funding ‒ would be interested to know how you’d like to use the funds you will raise.
Come Up With a Budget
One of the excellent ways to keep your finances in top shape is to put in the effort to manage them effectively. So, if you want to stay on top of it all and keep your finances steady, you need to have a budget.
Every business usually requires a different budget because of industry specializations. If you wanted to look at a balance sheet, then it’s only going to be a matter of time before you wouldn’t know whether you’re making money or simply losing it.
Make sure that you develop a list of essential items to boost your business growth. Moreover, you should also ensure that you build a modest budget, stick with it, and modify it if necessary.
Build and Maintain Your Credit Score
Your credit can make or break your chances of applying for a business loan. And whether you like it or not, there is a chance that you will eventually borrow money from the bank to expand your business.
Although there’s no telling how large the impact your credit score plays on the final decision, it’s something you have to keep in mind when applying for a business loan.
There are financial services that can help improve your credit score. This can be especially helpful if your name is included in your company’s registration documents. All you need is to find one that suits your needs.
Have an Emergency Fund
Only 25% percent of businesses survive for more than 15 years, and one of the reasons is due to cash-flow issues.
Ever since COVID-19 happened, having a consistent business isn’t a guarantee anymore. Anyone looking for resiliency, especially in the early stages, needs to do so with an emergency fund.
First-time entrepreneurs might find it hard to store large sums of cash for a rainy day, and that’s perfectly okay. Even just having enough at hand to cover for payroll is a lot better than nothing.
Find a Business Mentor
Another great tip when it comes to managing your finances is to look for a mentor. Ideally, it would help if you surround yourself with more intelligent people than you. If you think that you’re always the smartest person in the room, how will you find ways to grow?
Pick a mentor that has the financial foundation that you need. Do you want to build a six-figure business, then find someone who has already made one? Moreover, you shouldn’t limit yourself to just a single mentor. The more mentors you have, then the better off you are.
A great site to look for mentors is LinkedIn, attending a small business meetup, or simply asking around. You might even be surprised that many people in your circle can provide you with valuable advice based on their experiences.
Separate Business and Personal Finances
Generally, it’s also a good idea to separate your business from personal finances. You can do this by opening a new bank account that you’ll only use for business-related transactions.
Moreover, keeping your accounts separate allows you to save time when filing your tax return or if you need to review your expenses.
When you incorporate your business, you also need to separate your personal and financial accounts. This is to limit any personal liabilities later on.
Don’t Scale Too Fast
As much as you can, start small. You can start with a small time, and don’t get too excited to scale too fast.
Sometimes, it might be tempting to hire more people when the going gets tough. But the most important thing here is to focus on your finances and the quality of your output.
Understand Your Tax Obligations
To operate a small business, you might have to wade through a swamp of taxes. To prevent these unexpected taxes from inhibiting your growth, you need to do your homework.
Ensure that you research your city, county, or state’s taxes and what is precisely required to give back in the future. You might also consider hiring a CPA.
It also makes sense to hire someone who knows more than you in this specific area will help you the next tax season. Ideally, hiring a licensed accountant can educate you on the different types of taxes. They can also prevent you from the shock of unknown taxes you have to pay.
Your Business’ Finances Aren’t Always Rocket Science
Sure, business finance can be complicated. However, that should not stop you from ensuring that your venture is well-funded.
If you’re starting, you need to keep things simple. That’s because, as a first-time entrepreneur, you will have a lot on your plate. And until you can hire the right people, you need to be wary of your finances.
Ensure that you arm yourself with these financial tips, and then watch how you improve your business’s finances over time. Good luck!