Starting a new business is never easy. One of the challenges is financial management – ensuring financial stability while investing in business growth.
Establishing sound and prudent financial management is key to any business, but for small business owners, it can prove to be the difference between success and failure.
One of the key challenges business owners face is that they are not financial experts, which means they have to invest in making sure their ‘money management’ strikes the right balance between investing and saving.
For those facing this trade-off in practice, here are five financial tips to consider:
Separate personal funds
Rule number one for owning your own business; never mix your business assets with your personal assets. Combining the two can mean that you lose track of the company’s financial income and cash flow, and that you overestimate (or underestimate) personal wealth.
Also, if the company has debt to begin with, their debt can become your debt. Combining business with personal finances will make it difficult to reconcile financial records and therefore to know the difference between personal and business assets. So avoid the mistake of combining both accounts and use a separate bank account specifically for your business.
Live sparingly
In the early months or years, when your business is still in its initial stages, ensure that your costs are kept low. Even if you have personal loans to support all your business purchases, new costs can always arise. So it’s best to keep investing money in your business and stop investing in yourself until you become the successful entrepreneur you dreamed of being.
Keep gifts and rewards in case you reach a milestone or goal. This way you can save without spending unnecessarily.
Pay off the debt
Debt is never good for a business. So with any debt, make sure you have a workable repayment plan to eliminate the debt as soon as possible. It is recommended to first focus on debt contracts that have the highest interest rates, and then follow up on debt contracts with more favorable terms.
Maintain a cash reserve
A cash reserve can be like a savings account for your business that can help you in an emergency when there is no other way out. This can be crucial for companies, as you never know when an emergency will occur – if you have invested all your earnings, you may face financial problems. Always keep a portion of your profits aside to cover uncertain or challenging times.
Always budgeted
No business or individual with limited resources can operate without an acceptable budget. Budgeting makes everything productive and helps you stay focused on your goal. You will be less frantic when managing your business and expenses because you know exactly how much money is being spent and on what items. Create a working budget for all cost items and work out profits for the business and yourself.