One of the most common causes of failure in small businesses is tied to financial management. This can either be a lack of adequate capital or financial mismanagement once the business is up and running. If you are looking to start a business, you must have a sound plan and a detailed budget for it to keep you grounded on your goals. You also need the knowledge of best practices regarding finances to help you avoid pitfalls that may jeopardize the success of your new business. Below are a few financial tips to help you make sound financial decisions if you are looking to start a business.
1) Maintain a Good Credit Score
Unless you have saved up enough cash to start your business entirely on your own, you will need financing from angel investors, small business associations, or even the bank to bring your business idea to life. To qualify for financing, you should be able to prove that you are creditworthy, and this is shown by your credit score. For this reason, you must maintain a good credit score by ensuring that you don’t take up unnecessary loans and that you service all your existing credit consistently and on time. This will inspire trust from your financiers and future investors which will set your business up for success.
2) Invest in Professional Accounting Services.
As a new business owner, you may think that going at it alone is the most cost-effective way to run your business. The truth is, you can’t always manage to get everything done on your own, from marketing your business to taking care of your financial books. Instead of focusing only on bookkeeping, invest in the services of a professional accountant to help you analyze your financial data so you can make informed financial decisions.
An accountant will also help you set up a simple accounting management system for improved efficiency. This way, you can track your expenses and cut costs when necessary, pay your bills on time, and also have a clear picture of your company’s financial standing at any given time. If you can’t hire an in-house accountant, you can always outsource the service to an agency at a lower cost.
3) Separate your Personal and Business Finances
While it is common knowledge that a business should be a separate entity, most new business owners make the mistake of mixing up personal and business finances. You should separate your finances even if you are running a sole proprietorship as it helps you monitor your expenses and also file your taxes accurately. What’s more, separating your business and personal finances protects your personal assets from business liabilities.
The first step to separating your personal and business finances is establishing a legal structure for your business and then creating a separate account for your business. You can also decide to be paying yourself a salary so you don’t have to pull money from your business haphazardly. Also, maintain two separate budgets when planning your money; one for your personal needs, and one exclusively for your business.
4) Familiarize Yourself with Relevant Laws
Before starting a business, you have to be aware of all the laws you need to adhere to as a business owner. This includes your financial obligations such as taxes and licensing for your products or services. Other laws you need to familiarize yourself with as a business owner include occupational and safety regulations, compensation laws for your staff, employment laws, and unemployment insurance among others. This way, you avoid putting your business and personal assets on the line due to lawsuits as a result of non-compliance.
The good thing is that employment lawyers such as the HKM Law Firm can take you through the laws governing your relationship with your staff so that you don’t ruin your company image and progress by being on the wrong side of the law.
5) Keep Your Costs Down
The early stages of a startup are the most crucial in determining how successful your company will be, and keep in mind that it may take time before you can break even. If you are looking to start a business, take note of every cost-saving opportunity, and aim at minimizing your expenses. You can keep your fixed costs low by opting to co-rent a working space and have your employees work remotely, or even hire freelancers instead of having permanent employees with salaries and benefits.
Also, ensure that you analyze your risks and work to mitigate them to minimize loss. Minimizing your expenses not only allows you to boost your savings to keep your business running during bad times but also helps you win over investors. This is because investors can spot reckless or poor financial decisions by looking at what your business spends money on.
Always keep an open mind and leverage technology when it comes to financial management as it helps you automate your processes, minimize paperwork, and enhance efficiency. With proper planning and the above tips, you can successfully start and run a business without worrying about financial mishaps jeopardizing your goals.