The entrepreneurial process can feel overwhelming at times. Planning, organizing, and launching a business take a lot of focus, effort, and resources.
One of the biggest hurdles that must be overcome is that of finances. If your new company starts on a shaky financial footing, it can translate to a very turbulent startup process. If your new business’s financial activity is too chaotic or short-sighted, it can even spell a premature ending to your enterprise.
With that in mind, it’s important to square away your startup’s finances as early in the process as possible. Here are a handful of the most important financial concerns to address before you open up your doors for business.
10 Financial Tips To Get Started With Your New Business:
Consider Your Personal Life
The first thing to take into consideration is your personal life. This is always an essential part of the early startup process. How will your new business impact you personally – especially in the realm of finances?
Will you need to tap into a 401(k) or other life savings to make it happen? Will a new company impact your ability to put food on the table for your loved ones? Can you keep your job until you know you can live off of your business? These are critical considerations as you sort through the financial implications of launching your own startup company.
Educate Yourself and Your Team
Just because you feel that you understand an industry doesn’t mean you can necessarily launch a business in it – at least not without further information. That’s why it’s also important to do your financial research beforehand.
Encourage yourself and your team to dig into what it takes to maintain a startup in your field. Do you need particularly expensive equipment? A large warehouse or back office? How small of staff can you get away with while money is tight?
Analyze Your Track Record
Another really important area to consider at the beginning of the process is your business track record – particularly when it comes to your finances. Do you have any financial habits or activities that you’ve exhibited in the past that could hurt your business if continued in the future?
Do your best to identify these and mark them as red flags that you should keep in mind as you prepare for your new venture.
For instance, if you’ve launched a new business in the past, you can review how you handled your finances during that endeavor. Did your previous business succeed? If so, what lessons can you glean from your success? Did that business fail? In that case, you’ll want to be even more rigorous as you study where you went wrong.
Starting a business after bankruptcy, for example, is a tricky activity that requires careful planning, especially where money is concerned.
If you’ve never started a business before, you may not be aware of potential financial expenses or pitfalls that lie ahead of you. When that’s your situation, it’s still wise to analyze your personal financial history. Can you pay bills on time? Do you have a budget? Where are your financial strengths? What weaknesses are you aware of?
Next up, make sure that you’ve clearly defined what financial success looks like. For example, a classic business concept is that bigger isn’t always better. Do you need a million dollars to be successful? Even worse, if you leave your financial goals open-ended, you can become consumed with always getting “a little bit more.”
Instead, aim to rein in your financial goals, especially in the early days of starting your business. Create realistic financial objectives, such as reaching a certain sales goal or getting to your break-even point, that you can reach as your startup begins to find its feet.
It can also be a good idea to set a timeline for shifting out of the startup phase. This is so that you can proactively start to shift from a money-hungry startup mode to a more sustainable operational model when the time comes.
Start and End with a Budget
Most of the things discussed up until now have been general and preparatory. When it comes time to turn your business idea into action, you must start and end the process with a budget.
Outlining your financing needs is a crucial part of a thoroughly researched business plan. However, you don’t want to stop there. As your business begins to have real-life revenue and expenses, it’s important to rectify any discrepancies in your initial budget.
From covering basic expenses like payroll and utilities to forecasting demand and making long-term plans, an updated budget should remain at the heart of your operation from day one.
Protect Your Assets
As you set up your business, it’s also important to differentiate it from your personal life. Intimately connecting yourself to your brainchild is a nice concept to romanticize, but financially it’s a really bad idea.
Instead, protect your assets by clearly defining the lines between your business and yourself. A few tips to do this include:
- Making sure that your company operates as a legal entity – an LLC, S-Corp, or so on.
- Getting proper business insurance to protect your company’s riskier operations.
- Opening up a separate bank account for your company.
- Paying yourself separately as part of your business’s expenses.
Raise Funds Wisely
If you have to raise funds for your startup, carefully consider who you ask to invest.
Avoid slipping into a desperate mindset where you’ll accept anyone as a partner or investor.
Remember, there’s more to business than just money. You want to build a solid relationship, even with a financial investor. Each person involved in your company should be included in a manner that is meant to last.
Consider your options thoughtfully. For instance, if time is of the essence, you may want to look for a loan that can be approved quickly. If you have time to shop around, weigh the difference between working with an investor who will own part of your business and paying interest on borrowed money.
Save Money and Stay On Top of Debt
It’s fitting to discuss debt immediately after talking about investors and loans. The truth is, there’s a very good chance that you’ll need to borrow money to start your company. You may even need further cash infusions as you attempt to scale your business. And that’s a good thing.
However, you don’t want to treat the seed money mindset as an excuse to borrow and spend recklessly. On the contrary, you should do everything you can to reduce your costs and lower your debt whenever possible.
If you can go paperless, do it. If you can build up an emergency fund, go for it. If you have extra cash that isn’t required for a growth-oriented activity, apply it as an extra payment toward your debt to avoid extra interest. Whatever you’re doing, always try to be smart with your money choices.
As you start your business, it’s a good idea to establish a clear structure for your financial activity. This can make it easier to reduce errors, see issues before they become serious, and generally take some of the worries of your business’s finances off of your plate.
One of the best ways to create a financial infrastructure is with technology, such as:
- Setting up automated payments for your company’s various recurring bills.
- Using electronic invoicing to quickly and easily bill clients.
- Utilizing direct deposit to streamline payroll.
- Getting accounting software to track your financial activity and make it easier to make quarterly tax payments and file your tax returns.
We live in a technological age. Don’t neglect the power of fintech, in particular, to help you succeed right out of the gate.
Review Your Finances Often
Finally, it’s important to regularly review your finances. This is an excellent financial habit to get used to. Scheduling a monthly, quarterly, or even annual assessment of your company’s financial state can yield many benefits.
For instance, it can help you see potential issues that could be building up. It can also help you trim unnecessary costs and ensure that your current financial infrastructure is still doing its job well.
Putting Your Best Financial Foot Forward
Countless things need tending to when you start a business. As such, it’s easy to leave your finances either half thought out or in a chaotic mess. After all, you can always shore them up once you hit it big, right?
Except that it hardly ever actually goes that way. New businesses with weak financial foundations hardly ever have the legs to go the distance. Instead, take the time to bolster your business’s finances from the start. Consider your motivations, set money goals, create budgets, and carefully monitor every step of the process. If you can do this, you can give yourself the best chance possible for your company to ultimately find sustainable success.