Finally, your startup has kicked off its operations. Congratulations!
Nonetheless, before you grab a bottle of champagne and call for a celebration, you need to understand what you have gotten yourself into. The modern business world is highly competitive. Therefore, starting as a novice is an exhilarating experience. To succeed, you have to take risks and deal with a host of administrative tasks, which includes managing your business finances.
To help you better manage your small business finances and realize the full potential of your company, below are some strategies that will help you make the ideal decisions.
1. Create a rift between your personal and business finances
One of the biggest mistakes new entrepreneurs make is using the same bank account for business and personal expenses.
Look – sometimes, you may need money to take your family for a vacation, and if you don’t have a separate account for your business, such expenditure could lead to a cash crunch in your startup. Just like when you bet online on horse racing, you need to understand the odds to avoid going bankrupt.
Creating a rift between your business and personal finances will make accounting easy for you at the end of every financial year; therefore, you will be able to determine the progress of your business and strategize for the next year. Also, doing this will make tax ascertainment easy and straightforward.
2. Pay for insurance
Most entrepreneurs, including those who have been in the game for decades, hate paying insurances for their businesses. They only realize how important they are when a catastrophe, such as fires, hits their empires, and they are forced to start all over again.
Paying for insurance might be strenuous to your small business. However, in your bid to build a rigid profitable portfolio, you need to know what is right for your startup from the word go. Get a reliable insurance company to cover different aspects of the business. This will provide you with the much needed financial security in case anything happens.
As your business grows, you can increase the insurance to cover you, your business, and your loved ones.
3. Avoid expensive credit
The cost of credit will determine whether you make a profits or losses in your startup. When starting, therefore, it is critical to avoid expensive credit. Only take what you can afford to pay. As a rule of the thumb, set your interest core at a bare minimum. Doing this will reduce the costs of running your business, and help you achieve profitability in no time.
4. Trace the movement of your finances
If you don’t track the movements of your finances regularly, then you need to change your tact because you are doomed for failure.
Even if you started your business yesterday, ensure you have well-outlined payments terms, since they will go a long mile in helping you manage your finances.
By keeping track of your funds, you will be able to determine the areas of your business that are performing well, and those that you need to control to achieve more success. Also, it will give you enough data that will help in creating a reasonable budget that will push you to greater heights.
5. Negotiate with vendors before signing an agreement
Your negotiation skills play a big role in your quest to manage your business finances effectively.
Before you sign a contract with the vendors, make sure you have received the best deal you can find in the market.
Always know what you want to achieve at the end of every negotiation. Scrutinise grace periods, payment penalties, and purchase terms, so that you can be sure you are going for a deal which will help you save money in the long run.
6. Have an emergency fund in place
Even if you are selling products or services that no one else is offering in the market, you can rest assured that you will not make consistent sales month to month.
To create a steady flow of income, therefore, you need to develop an emergency fund. Design it during the peak season, and use it to settle expenses during the off-season. This is arguably one of the smartest ways of managing small business finances that no one will tell you about.
7. Lease equipment instead of buying
Purchasing equipment for your small business can hurt your finances, especially if you have started with on a tight budget. Luckily, you can save a significant amount of money that you can use on everything else that matters by leasing equipment.
As your business grows, you can purchase one equipment at a time, and within a year or so, you will own everything you need to run a successful business without straining your budget. Prudent, huh?
Running your own business can be an exciting experience, but it can be challenging, especially when it comes to managing finances. To stick out of the crowd and make smart money decisions, practice the above strategies, and your venture will become a huge success before you know it.