Let’s talk about how to manage your finances at the very start of your business and avoid the financial mistakes that budding entrepreneurs make.
Tip 1: Keep your personal and business funds apart
It is important to separate cash flow when buying things needed for the business and for personal use, cash for hospitality expenses, and paying for dinner at a restaurant with friends.
Most often this situation arises when an entrepreneur works alone. “What difference does it make? Everything is taken from one pocket and then goes there!”. Formally – yes, because you invest personal funds and take profits for personal needs.
However, if you don’t keep separate records, you can’t properly assess the performance of the capital in your business, analyze your costs, are worse at forecasting expenses, and increase the risk that you won’t even notice when the financial complexities of the business become personal.
Tip 2: Keep your costs as low as possible
Even if you have some startup capital, in the first phase, only spend money on what you need to get your project up and running. If you are making a relatively new product or service, don’t forget the principles of a lean startup.
Make the simplest version of the product or service that replicates your idea just long enough to gauge demand and adjust your idea.
If you are starting a generic business with what you think is a predictable cost structure and payback period, remember that conditions are always different, what worked for others may not work right away for you, so build the simplest and cheapest infrastructure to assess your options at first.
Research and utilize the most optimal services and rates. For international payments for business owners, this could be Transferra UK, which offers a variety of financial services to entrepreneurs, including foreign payments, currency exchange, personalized IBANs, and more.
Learn how to get some services for free or barter. Ask your business and personal network of acquaintances for help more often, look for bargains, bargain with suppliers, and look for cheap promotion channels.
Tip 3: Maintain management documentation
Record all of your expenses and income by defining a line item structure that you will use for both planning and accounting. Get into the habit of doing this from the beginning.
At the top level, it is common to separate expenses into core activities, payroll, marketing (customer acquisition), business activities, and taxes. Revenues – for core activities and related (e.g., partnership payments).
Over time, the items may change and their detail may increase, but an understanding of the structure of your business finances should be formed from the first days. This is what will allow you to manage your business based on concrete numbers.
Tip 4: Plan your expenses and income
One of the most important parts of not only managing your finances, but business in general, is a budget. Many aspiring entrepreneurs, don’t realize that you can budget without customer flow and multiple expense items.
However, not having a financial plan and the most general financial model of the business is the same as doing business without a goal.
Analyze the market, and your opportunities at the start, make a forecast of income and expenses, and start doing business according to this forecast.
At first, your forecasts will require regular adjustments, but over time, you will understand the market and learn to manage the levers of the business so that financial plans are fulfilled.
In addition, do not forget about the large expenses that may await you in the future. This includes taxes and deferred liabilities. In addition to keeping a budget, mark important financial events on a payment calendar.
Tip 5: Monitor your cash flow regularly
Cash flow is the circulatory system of your business. At the first stage and during the growth process, it is important to constantly monitor what is happening in your account.
While your business model is not perfected and undergoes constant changes, it is important to keep an eye on the key figures – total income, total expenses, and profit for the period (per day, per week – depending on the number of transactions per unit of time) and account balance.
In the first period, it’s important to learn how to manage your cash balances. If you see that your account is running low, incentivize early payments from clients with discounts or reallocate resources to get payments from current clients faster. Also, try to work with clients on a prepayment basis, and settle accounts with vendors when work is completed.
Conclusion
These rules will probably seem pretty obvious to you at first glance. However, apply each of these points to your business and try to assess where you are missing something.
