Five Money Management Tips for Entrepreneurs
In a 2014 survey by Startup Muster, 18% of the 976 respondents who are small business owners said that they’ve tried but failed to raise capital through small business funding and other capital-raising methods. Only 12% were able to raise the amount they needed to fund their businesses, and about 19% needed a spot of help from family and friends.
All these numbers point to one thing—generating money to start and continue a venture is tough business. First-time entrepreneurs, in particular they need to have the discipline and willingness to learn the financial management principles necessary to get their projects off the ground. The following are just some ways you can continue to fund a young venture.
Create a separate bank account for your business
One of the most common mistakes rookie entrepreneurs make is mixing business money with personal funds. Initially, this won’t seem like a big deal. You’ll have to invest your own money to start your business. Once the money starts rolling in, that’s when the problem begins. Your business is going to require a revolving fund to keep operations going, at the same time you’ll need to take care of your own expenses. This is a slippery slope that can lead to a personal financial crash.
The only solution to this is to create a separate bank account for your business. Not only will it stop potential tax-related headaches, it will also allow you to accurately gauge the profitability of your venture.
Hire a good bookkeeper
As a small business owner your chances are you’ll be wearing a lot of hats to keep things running. CEO, COO, CFO—these big titles will come with the expansion of your business. Until then, you might have to do other tasks like inventory management, product development, sales pitches, and more.
If you do not have time to study accounting and bookkeeping, it would be best to hire an accountant or bookkeeper to manage your finances, another option is to invest in DIY accounting software. There are accounting software programs today that offer neat and easy ways to track invoices, operational expenses, receipts, and vendor lists. Some of the software programs also allow you to upload bank accounts and transactions so you have a good view of your cash flow.
However, if both options are too pricey you can always brush up on your Excel skills and track company finances the old-fashioned way. There are a lot of tutorials and templates online which can help you create invoices and income statements.
Don’t forget to make financial projections
When running your business it’s important to have a clear financial projection. Not only does this act as your main business plan but it also helps you anticipate and address future issues. Some investors also require financial projections to help them decide if your venture is a worthy investment.
If a monthly forecast is too daunting a task to take on, as an alternative have a yearly forecast with monthly and quarterly checks and alignments. In making your forecast include details on staffing, equipment, and software acquisitions.
Pay yourself first
Now that the business is running and actually making money, start paying yourself. This is one of the most important business tips from world-renowned author, Robert Kiyosaki. Of course, paying yourself doesn’t mean emptying your company account, it simply means setting aside money for savings on a consistent basis. You can start with 10% of the earnings and work your way up as you see fit. This is a good way to test the profitability of your company while providing a safety net for any surprise expenses.
Just because you’re the CEO of a startup company doesn’t give you license to start going on vacations twice a month. Even if you can afford it, you cannot allow yourself to be absorbed by the benefits of ownership. At least wait for your company’s finances to stabilise before indulging in luxuries.
What can be done instead is to set your salary as low as possible, offer only government-mandated benefits for the moment, avoid ostentatious workspaces and more importantly go to business trips as if you were paying for them instead of the company. Setting an example of frugality will cascade down the entire organisation. It will teach your employees the value of company money and it will help reduce business expenses. What you save now will mean financial flexibility during the lean months.
Raising capital for your business
If you have a great idea but don’t have the small business funding needed to start your venture there are different means to get the capital you need. There are banks and alternative lending firms that can provide you the funding you need to get started and to get going. Before approaching a bank or an alternative lending firm recognise your needs well first, how much financial assistance will you need? When will you need it? What the repayment terms you will be most comfortable to commit to? Then, know the application processes and prepare your requirements accordingly.
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