How to make the right financial decisions when starting a business?
If you are a new owner looking to improve your chance for business success, you need to take the time and effort to prepare yourself financially. If you don’t manage your money correctly, you are setting yourself up for failure.
The goal of this article is to provide you with practical and effective advice on how best to take care of your finances. In other words, what steps can you take to reduce your risks when starting a new business?
The golden rule to abide by before starting your business is to have one year’s worth of working capital and one year’s worth of living expenses in the bank. This money acts as a safety net in case things don’t go according to plan.
It is also important to bear in mind that these are two different types of capital. You need to make sure you are protecting not only your business but also your family. A further step you can take to that end is to have regular meetings with your spouse or partner where you discuss your current financial status. These meetings serve the dual purpose of providing accountability and a sense of security.
As a business owner you have a responsibility to learn how to read, interpret, and effectively use your financial statements. You should know what your cash flow is at all times. Additionally, you should know how to calculate your breakeven and what day of the month you break even. This information is crucial for the timing of your payments.
Be smart about chasing revenue
Obviously, nothing is more important than generating revenue. Making money is the main goal of starting a business. When deciding where to allocate your capital, it is vital that you choose activities that will relate to increasing sales.
Be deliberate about where and how you are spending money. For example, if no one is visiting your store, it doesn’t matter that you just laid down new flooring. That money could have been put to better use attracting customers.
Don’t spend what you don’t have
It seems pretty self-evident that you cannot spend money that you don’t have in the bank. In reality, though, it is very tempting to spend money that you are expecting to receive as part of a deal.
A good rule to live by is to wait until the contract is signed and the money is sitting in your bank account before you spend it. Too many things can go wrong between a handshake and when the bill is paid.
Talk to your potential clients
Don’t theorize about who your potential customers are or what they need or want. Go out in the world and ask them. Once you have some real answers, you can develop products at appealing prices to make the most profit. This will cost you next to nothing and will save you money in the future.
Before you go out and hire someone to perform a service for you, why not try it yourself? There is so much information available today; you can often teach yourself the basics of a certain skill. Save that money up front and then, when you have better cash flow, you can hire a professional to refine what you have started.
The best way to improve your chance of business success is to make smart financial decisions. Even with a lack of startup capital, you can grow your business by being frugal, practical, decisive, and creative. Don’t underestimate yourself or your abilities.
Want more help with your business?
If you like the above tips, you are going to love working with Success Harbor.
See the many ways we can help your business on our “Hire us” page.
photo credit: Analyzing Financial Data
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