Many small businesses go bankrupt in less than a year of operation because entrepreneurs never take planning seriously. Running a business is not a walk in the park. The problems would crop up one after another and can be overwhelming for a small business owner.
However, the best advice to be successful in any business is to be financially optimistic yet realistic at the same time. Yes, you can be ambitious and even outrageous but you have got to be realistic as well. You have to set goals and plan so you can execute them with precision.
The financial side of the business can be very challenging especially if you do not have any accounting or economics background. Finding a financial advisor or mentor would definitely come handy in making business decisions.
You can’t be in the same place as last year – at least financially. You aim to expand or be better for this year onwards – that is the plan. Here are a few financial tips from the experts to help you move your business in the right direction this 2020.
Plan And Set A Budget
A lot of entrepreneurs would think than budget planning is just unnecessary paperwork or a mindless chore – but it isn’t. To be financially sound, you need to have a budget. In fact, a budget actually guides you with every business decision so you know where to appropriate funds without breaking the bank. This also helps you manage your spending while ensuring that your projected income for each phase of the business is realized.
Without a clear budget, your spending can go haywire. You can just spend without thinking of the risks or even checking on its profitability score. You would need to scale back or perhaps take out additional loans just because you have overspent and did not create or stick to a budget.
You need to set a budget and build on those numbers. Your business plan will be executed properly if you seriously consider jotting down and creating a budget plan for your business.
Keep Your Business Funds Separate From Personal Money
Well, this can be tricky especially if you get your personal and family expenses right from the business profits. Most small businesses fail in the first few months because they are tempted to overspend every time they make a profit which can be fun but eventually hurts the business cash flow.
However, to create a balance and keep everything in financial order, you would need to live on an allowance or paycheck rather than spend lavishly from the business funds. To do this, you would need to allocate funds for a budget and stick to that.
Dedicate a separate bank account for your personal spending and another account for strictly business spending. This allows you to manage your profit and even have enough for expansion or for other investments.
Having separate bank accounts and records of your personal and business finances would also be very helpful when you deal with accounting and taxes.
Invest And Upgrade Your Technology
Investing in technology or applications and equipment that can enable smooth and seamless financial transactions is considered a solid and viable investment because you get to save or reduce costs over the long haul.
Backed up by a financial or accounting software will enable speedy and accurate recording of transactions and also allow you to track money movements and manage your finances online and offline.
In terms of equipment, you can keep your expenses at a bare minimum when you opt to rent equipment rather than buy a new one. You can just upgrade or purchase new equipment as the business profits roll in and you expand.
Consider Outsourcing Your Staff
While having a physical business works for most industries, you must keep a tight rein on expanding your staff right away especially for startups. You cannot spend overboard especially during the first few months of business operations. It is recommended to outsource, either you subcontract freelancers from inside the country or internationally, which you can decide on depending on the costs and efficiency level.
With outsourcing your staff, you avoid having to pay for the overhead costs and equipment as well as a full-time salary because you can pay per task or by the hour. It’s practical and more cost-effective to outsource because you get to pay based on productivity or results and not just on hours spent in the office. This actually proves to be a win-win arrangement for both you and your staff.
Over time, you can choose to expand territories and acquire more staff to handle operations or sales. Spending too much at an early stage of the business can be very risky especially with limited capital so outsourcing your staff would definitely be a huge help to keep your business afloat without spending too much.
Set Up An Emergency Or Retirement Fund
You should set aside funds for emergencies or retirement. This should always be included in your business plans. Investing in your future or for emergencies will be very helpful especially in catastrophic financial situations. Sales aren’t the same month as there are peak months which generate a high and steady flow of profit while there are slow or off-peak months wherein sales would decline.
The best way to prepare for these financial emergencies and avoid bankruptcy is to set aside funds for retirement or emergency to serve as a buffer in times of financial crisis.
Pay Off Debt
Credit plays a very important role in startups or small businesses. This should be a top priority for a small business owner because you have to keep your debt at a minimum range so you can have more room to grow and expand.
Limiting your credit and paying off your debt on time can help you gain profitability at the quickest possible time. A bad credit score of debts can also damage your financial reputation or credit rating. These debts should be paid off in full or cleared in the next year so you can start with a clean slate and also be in a strong financial position to attract more investors into your company.
Running your empire is a very challenging feat but it can be exciting, especially if you have a clear financial direction. Managing finances can be overwhelming because it would be very hard to achieve a balance between your profit and expenses plus also handling your debt but it can be done.
Having the right financial knowledge and skills would enable you to make smart financial decisions for your business. The first step would be to have financial goals set for yourself and the company. You should also have the right mindset and discipline to strictly use business funds for business and not for personal needs.
There is a lot that goes on with being financially agile in today’s fast-paced world. It can be extremely difficult to stick to your budget or focus on business operations and expansion with the right timing in place. However, the best way to gain that competitive advantage is to be financially intelligent in order to get your business in full throttle for 2020.