As a new business owner, developer, and leader, you might feel excited and overwhelmed as you begin to project your business goals. There is a lot to be proud of as an entrepreneur deep-diving into the competitive world of business. Still, if not managed correctly, there is a possibility your company could be affected by the economic crisis. This is simply the reality of business ownership, but don’t get discouraged, there is a way to build a successful business that can withstand any hardship. That’s why it’s essential to understand the most common reasons why new companies fail and to prepare yourself, so you don’t run into any of these pitfalls. Here are a few financial tips for new entrepreneurs:
1. Manage Cash Flow
Money is one of the top reasons why businesses fail, especially during a time of economic uncertainty. Whether they spend too much money, make too little, don’t properly invest, or hire without planning, there is bound to be some financial trouble. One way to properly manage cash flow is to build a budget based on your income.
It’s difficult to start spending money you don’t have and be able to catch up quickly enough to pay that money back. Your budget should be the plan your business runs off of, and if for any reason you get off track, you must do everything in your power to neutralize the effects so that it doesn’t impact other areas of your business.
2. Track Spending
Make it easy on yourself when trying to stick to a budget by tracking as you go. Rather than waiting until the end of the month to receive all of your bills, keep a running record of your purchases throughout the month. To hold yourself accountable and make sound financial decisions, you should always be aware of how much you’re able to spend.
You might even want to consider using a no-fee online banking app on your mobile device, which allows you to track how you spend your money without having to pay maintenance or overdraft fees. This is beneficial for busy entrepreneurs who might not have time to update a spreadsheet daily. An online financial platform also lets you have constant access to your checking and savings accounts, no matter where you are.
3. Determine Business Needs vs. Wants
One area that many entrepreneurs struggle with is neglecting to separate their financial endeavors and identifying their business needs vs. additional wants. This isn’t to say there are no grey areas, of course. Certain products or services might be considered more of a want, but you might be able to prove their value as they could save you money or time in the long run.
With that being said, you should be able to identify and focus on the few needs that you cannot run your business without, like a laptop, a phone, or a website. Those items need to be accounted for each month, and their service charges must be included in your budget. If you still have money left over after factoring in those charges, you can move onto your wants list and see if any items might fit into your budget for the month.
4. Keep Business and Personal Separate
It can be tempting as a small business owner or new entrepreneur to utilize your personal bank account to help your business during difficult time periods. Pulling a little money from your savings account might not seem like a big deal, especially if you’re planning to replace it—once you make enough money.
Rather than getting sucked into this game of back and forth, start off with separate bank accounts for your business and yourself. This is also going to benefit you more when it comes time to pay taxes on your business’s income and expenses.
5. Pay Yourself
Yes, you should be paying yourself from the first day of opening the real or virtual doors of your business. Remember, your company will continue to grow if you properly plan for it to develop. This means you will have to earn a living, just like your employees —should you choose to hire any.
Start implementing the practice of paying yourself from the initial stages of your business, even if it’s a small amount. This habit will once again reinforce proper budget allocation and provide you with a better sense of the income and expenditures you will be facing in the future.
Accurately calculating a business budget as a new entrepreneur can feel like a daunting task. Although the financial side of a business can be intimidating and complex, it’s one of the most important aspects to consider if you want it to continue owning a business in the future. By taking the time to plan, budget, and revisit your approach regularly, your business can continue being successful through these turbulent times.