As you start your new business, a large portion of your time will be spent managing your finances . Even if you have taken the time to learn about finances as they relate to operating a business, you may still be experiencing difficulty in putting your education into practice. These tips can help you manage your business' finances more efficiently and, over time, making wiser financial decisions will become easier.
Your Budget is More Than a Guideline
You may understand the importance of creating a budget and you may think you're abiding by it, but most business owners fall short in this regard. They spend money on "little things" and don't realize that these items should be included in the budget. Every expense, whether it costs $1 or $100,000, should be included in your budget and this may mean adjusting your budget as you move forward. When you spend money and don't account for it, you may be left wondering where the business' capital has gone when you need it the most.
Start an Emergency Fund Early
Just like a homeowner, you're going to have to plan ahead for emergencies. In addition to damage and maintenance problems with your business' building, this means planning for equipment repairs and replacements, slow earnings periods, and potential lawsuits filed by your customers. By saving for these events from the start, you'll build up a good savings to cover those emergency expenses. Otherwise, you may have to take out a loan, which can affect your entire budget and have long-term consequences on your business.
Be Diligent in Collecting
In many cases, businesses fail because their customers aren't paying what is owed. Depending on the type of business you operate, this may be a significant problem for you and it may require re-examining your policies. First, you must increase the pressure on customers to pay what they already owe. Secondly, it may be necessary to start requiring payment upfront . This will help you avoid a situation in which you're falling in debt due to your customers' lack of payment.
Pay Attention to Your Business' Credit Profile
Just like an individual, a business also has a credit rating. Although the factors that go into establishing a credit rating may be more complex, your business' credit profile relies on many of the same principles. If your business is already suffering from poor credit, you may be tempted to use a service to help your business recover. Beforehand, it would be beneficial to consult creditrepair.com reviews and similar services to determine whether or not the company you choose is reputable. Selecting the wrong company can put you in a worse situation and one that may affect your business for years to come.Related: 5 Startup Friendly States Worth Relocating To
Separate Your Personal and Business Finances
While this may seem like common sense, most new business owners don't do it. They simply take money from the business to cover their personal expenses and vice versa, assuming future earnings will level their overall situation. It's wiser to keep separate business and personal bank accounts and to pay yourself a salary just as you would do with any other employer. This helps you establish a distinct line between your personal finances and your business, so you'll have more accurate picture of your business' expenses and capital.
While that new machine does have exciting new features, ask yourself if your business really needs it. If your business is growing and that machine will help you keep up with the demand, buy it. However, if your current machine is operating efficiently and can handle your current demand, it's better to put that money away for a rainy day. Similarly, pay yourself a modest salary until your business starts to grow on a steady basis. Starting your business means making these sacrifices early on and, if you manage your finances correctly, your future growth will be that much more promising.
Generally, managing your finances is directly related to how you operate your business . If your record keeping process is accurate and you're diligent about keeping up with customer accounts, you'll experience far less financial problems. In addition, being more watchful of what you spend can help you save capital for the necessary expenses that will crop up from time to time. While this won't be a permanent situation, being frugal can help you weather the lean times until your business does start to turn a bigger profit.