As an entrepreneur, it is extremely important to have adequate financial literacy and knowledge. This is because every decision in the business involves money, and money can be difficult to manage especially if you’re not aware of its realities. When starting your business, you need money as capital.
Also, to keep your business running, you will normally have financial obligations to fulfil. Thus, if an entrepreneur does not know how to properly manage finances, it will render the business incapable of paying its debts. When a business cannot pay its debts, it is expected that some assets will be extracted from you. And, in a lot of worst case scenarios, the business will be forced to shut down as a result of bankruptcy.
Here are the top 10 tips that can help you streamline the balance of profits and expenses in your business.
1. Establish Clear Financial Goals
A business exists because of its goals. It is essential to set your business’ financial goals as realistic and clear as possible so that you have a greater chance of achieving them.
Setting goals helps guide you in your decision-making.
It also helps you focus on the future of your business and discourages you from aimlessly spending time and money on irrelevant things that distract you from achieving your financial targets.
2. Create a Budget
A budget is the key to a business’ financial success. So, after clearly setting your financial goals, you need to set a budget. Simply put, a budget is a spending plan that allows you to prioritise your expenditures. Having a budget means that every time you make a purchase, you base that purchase on your budget so as to not overspend. Because if you were to overspend, you’d end up comprising other expenditures and risk not having enough money for the things that you actually need.
A budget helps business owners not only plan for expenses, but also, analyse expenditures. And, when analysing expenditures, you’ll be able to identify those expenses that need to be decreased or increased.
3. Track Your Spending
You cannot analyse your business expenditures if you do not track your spending. As a business owner, tracking costs will allow you to stay on top of your expenses. And, when you’re on top of your expenses, you’ll be able to directly see those expenses that need adjustments.
Tracking expenses plays an important role in helping entrepreneurs streamline their business’ finances. It’s for this reason that entrepreneurs utilise specific financial software and tools to be able to effectively understand their business’ financial position. These tools are useful in detailing the business’ spending patterns and providing analytics. By evaluating your business’ expenditures, you’ll be able to develop a reasonable budget. And, you’ll also be able to track your progress to ensure whether you are spending within your limits or not.
4. Negotiate with Vendors on Pricing
In business, it is vital to constantly negotiate on pricing especially when you’re dealing with vendors. Before the closing of every deal, entrepreneurs should know when to bargain. When bargaining, the entrepreneur must learn to ask about the price, discounts, sale terms, penalties and grace periods.
An example of this is when your business’ grace period is after 30 days and you successfully negotiate for an extra number of days with the same interest rate. This sort of negotiation is worthwhile for your business since it will allow you to save money and increase your cash on hand.
5. Keep an Eye on Your Credit Score
Your credit score directly impacts your ability to acquire anything like a credit card, car, loan or a home. So, maintaining a good credit score needs to be high on your priority list because it will be useful if you need to acquire financing for your business.
Delayed or insufficient financing is a cause of many business failures. Your credit score signifies your worthiness and your character when it comes to on-time payment. Because lenders will not allow you to borrow with a poor credit score and suppliers review your credit history before allowing certain concessions, you need to ensure that you maintain a good credit standing.
6. Separate Your Business & Personal Finances
Your personal finances are different from your business finances. You need to keep them completely separate.
Entrepreneurs must open separate bank accounts for personal and business transactions. Doing so will help by providing you with an uncomplicated accounting experience at the end of the financial year. It will also help you avoid a liquidity crisis in business caused by not effectively monitoring your personal withdrawals.
Yes, you may need start-up capital from your personal savings, but as you go along with your business, you will be using business profits to fund your business.
7. Select the Right Investors
Investors are useful especially if your capital is not sufficient to start up your business.
However, when it comes to selecting investors, it is crucial that you choose the right ones. And, this may very well be one of the most important decisions you make as an entrepreneur.
As a starting point, the investors that you consider should:
- Be aligned with the goals and interests of your business
- Come from diverse industries
- Be passionate about your products
- Possess trustworthiness and transparency
- Solve your business’ existing problems
Selecting investors is not an easy task and can come with multiple risks, so seeking guidance from a qualified advisor is recommended.
8. Set Up An Emergency Fund
Risks are inevitable in every venture. That’s why setting up an emergency fund is critical to your business even during the start-up stage.
The value of an emergency fund should amount to three to twelve months worth of a business’ expenses, depending on its financial needs. In reality, there will be off-months in your business. Thus, you will need a backup reserve to cover your expenses during these stagnant periods.
An emergency fund is useful in these situations. It’s important to understand and incorporate recompense into your processes so that the amount taken from your emergency fund is replaced when your business emerges from these rough periods and becomes financially stable again.
9. Seek Constant Education
Education is the only way for entrepreneurs to be aware of their business’ finances. Your business’ finances are the most serious aspect of your business. Without proper financial management, you stand to lose your business before you know it.
Educational resources can be found in:
- Journals and databases
The key is to ensure you rely on relevant and credible sources, and not unfounded material shared by unqualified authors.
10. Get Help from Professional Experts
Running your own business is one of the most exhilarating feelings you can experience as an entrepreneur. But, it can also be the most stressful thing if you do not know how to manage this well. So, it is vital that you equip yourself with the proper financial management skills on route to business success.
Because financial concepts, terms and strategies can be quite complex in nature, seeking help from professional financial advisors is a valuable option. These financial experts are capable of pivoting your finances using the effective strategies that they’ve employed for years. And, given their experience and expertise, financial advisors will be able to help your business get to where it needs to be and build a robust financial future.