When starting a new business, there are many things to take into consideration. You will have to decide what type of business you want to start, whether to go at it part-time to test the waters or plunge right in full-time, whether you’ll be selling a physical product or a service, or a combination of both…these decisions are only the beginning.
One of the most important things that you will need to take into consideration is how to manage your businesses finances. One of the top reasons that new businesses fail within the first two years is that they fail to prepare financially.
There’s little reason why this should happen, but unfortunately it does. By learning basic finances and prudently choosing how you spend your money, you can avoid this mistake. These small business money management tips should be helpful when thinking about entrepreneurship.
Valuable Money Management Techniques
There are many different techniques to help manage your money when starting a business, and what may work for one person may not work for another, depending on the type of business. There are a few practices though, that should be followed no matter what type of business one decides to start.
1. Create a budget
Before, and during the creation of your business, you will need to create a budget. You will want to capture all of your expenses and income, and keep it in one place. Keep on top of everything you spend, including the pack of pens that you buy. Small items can add up quick, and the only way you can see where your money is going is by writing everything down.
It is critical that you monitor your spending, as a lunch out, a new coffee machine, or that big fancy monitor that you just have to have can bury you before you have a chance to get off the ground.
In order to make the most of your money, you need to know which investment of your time and money yields the most income. Keeping track of your money is a certain way to do this.
2. Save what you can
When you make that first big sale, and you feel like you’ve got it made, a nice meal to celebrate may be in order, but don’t go overboard; save as much as that income as possible. The profit from that big sale may have to last you a while.
Building an emergency fund for your business should be just as important as having an emergency fund for personal expenses.
As an entrepreneur you won’t be getting a regular paycheck. One big sale won’t necessarily mean that the next big sale is right around the corner. 2020 has stretched a lot of small businesses to their brink, as well as sunk many small businesses completely. The economy is never a certain, and tucking extra money away for a rainy day, or for a tumultuous year, is a very insightful decision.
3. Maintain good credit
Always be mindful when applying for credit, and always keep track of your credit score.
Work hard on keeping your credit score as high as you can. Think long and hard about any credit that you do apply for, and make sure you will have the means to pay it back as required. If you can make do with equipment that you already own, then keep working with that until you can pay in full for the new equipment.
Sure, it’s not as fun, but it’ll feel so much better knowing that you are working with something that you own, and not something that you’re making payments on.
Make sure you pay your debts on time. A good credit score can help you obtain affordable credit when you do actually need it for larger purchases, as well as create trust and favorable terms with your suppliers. Good credit is a must for a robust business.
4. Remain frugal
Be frugal. Send in for rebates, use coupons, take advantage of sales. Use your money wisely. Buy used over new when possible. Take advantage of cost savings in going green by reducing, reusing, and recycling whenever possible. Buy environmentally friendly electronics to save on utilities. Make thriftfulness a habit.
5. Keep Personal and Business Finances Separate
Always keep your business and personal income and expenses separate. Open a separate account for your business only, and never mix it with your personal account. You can pay yourself out of the business account when finances warrant, but don’t dip into the business account to pay for your groceries for the week, or for your monthly cable bill.
Combining business and personal finances results in unorganized record keeping and it makes it difficult to track what is actually coming in and what is going out.
6. Invest in Software
A good software program can help you keep track of all your finances, as well as keep all your financial information in one place.
FreshBooks is a great cloud-based software that works great for sole proprietors and consultants and is easy to use even for non-accounting users. It lets the entrepreneur focus on his or her business while it works with the financial side of the business. 
There are many different types of software out on the market, so shop around and make sure to find the one that’s right for you.
7. Educate yourself on finance
You don’t have to be a CPA, or have a degree in accounting to run a business, but it makes good sense to get the basics of business accounting to know exactly what’s coming in, and what’s going out of your business.
The internet is filled with a plethora of information from forums to podcasts that teach about various financial management skills such as budgeting, basic booking, and income tax, just to name a few.
For more complicated matters, hiring a professional is the best way to go. With the ever-changing tax laws, a tax advisor or CPA is definitely recommended once you start making money.
The more you understand your business finances and cash flow, the better prepared you’ll be to make smart money management decisions.
Be Prepared
The greatest tip in managing your business finances is to be prepared. Be prepared for financial drought with your savings, be prepared with a realistic budget to live by, be prepared by avoiding unnecessary expenses, and remaining frugal with the purchases that you do make.
By following these small business money management tips, as well as keeping yourself informed of recent financial news and changes, you’ll be on your way to becoming the savvy entrepreneur, who’s ready for whatever comes her or his way.
