By Ivan Serrano
There are few things as exciting as starting a new business, but with it comes many challenges. Many entrepreneurs generally have some kind of plan for success, yet all too often stumble when it comes to financial management. You aren’t alone as even the most prepared entrepreneurs often struggle with different areas of their finances from securing capital to managing cash-flow as there’s always unexpected pitfalls. Unfortunately, insufficient capital is one of the top reasons 50 percent of businesses fail within the first five years. With that said though, there are some ways you can avoid the most common financial missteps.
Build a cash reserve
Cash is still king, especially in the business world. While the cost of actually starting your business might not be much, you likely aren’t going to start turning a profit immediately. Unfortunately, even if you aren’t making anything, you still need to have money to pay for taxes and run your business. As in your personal life, you should try to put aside as much as you can just in case you come up lean times. Most experts suggest a buffer of at least six months. If you still have a day job during your startup you should get into the habit of setting aside some of your paycheck into your business account weekly.
A business without a budget will be a constant drain on your finances. Not only does a budget set the direction for business growth, it also outlines the exact amount you need for your cash reserves. With your budget you can then outline your break-even analysis and even use it to forecast your future profits. Of course, you will have to update it frequently as your needs might change unexpectedly.
Review your bills
No one likes dealing with bills, but that’s why it’s even more important to look over each incoming bill with a fine-tooth comb. You will be surprised the amount of times other companies or contractors will overbill you. So even if you have many of your payments set up on auto-pay, be sure to check your statements carefully and take note of any service fee changes or specified limit that pushes your business into the next tier of service.
Don’t overinvest in your business
You might not want to ask for help, but running up your credit cards and draining your savings account will put you and your company in the red. Instead, find ways to raise some capital in the early stages of your business. Ask friends and family first and if you still don’t have enough, there are many other options such as crowdfunding and even peer-to-peer lending. Of course, you should only do this once you’ve brought your expenses down as much as possible. If you’re the only employee in your company, you can save a lot of money working from home or online instead of renting out office space. You can then use some of this money you saved to building your brand and customer base.
Talk to an expert
There is no shame in going to someone more experienced for advice. In fact, it’s encouraged! In the U.S., there are local SCORE chapters where you can gain valuable insight into your particular field from someone who has experience. This is an excellent free resource and these experts can put you on the path towards financial success. The one piece of advice they’ll all tell you though is to have a relationship with a financial expert. While hiring them might seem expensive, the amount you will save in taxes can balance out the cost. Many of these firms also offer initial consultation and advice for free, which is often what you need to get started. All you need to do is make sure you come prepared with the right questions.
The road to financial success
Keeping track of your revenue and expenses might not be exciting, but it is an integral part to running a successful business. Once you are armed with a good budget and clear goals, you should be able to weather unforeseen circumstances with ease.
Ivan Serrano is a web journalist living in San Francisco, California. His topics of interest are business, social media and marketing. When he isn’t busy inking a new article, he’ll probably be out and about practicing his photography, or watching sports games.