Sometimes, simplicity is the key. For a set of rules to be effective, it isn’t necessary that they must be complicated or too impractical to implement. The same applies to the rules that should be followed by those who aspire to become an entrepreneur, especially for those who are about to find their first venture.
Following are some financial tips for businesses to manage their finances:
Don’t Run out of Money
The most fundamental commandment which deserves to be mentioned before others is to never run out of money. Your options become limited when your money is gone. The next thing to fall victim to bankruptcy is your credibility. It will no longer matter how innovative your marketing strategy might be or how good your product is – without money, the simplest of things begin to seem impossible.
Gone are the days when the only thing you needed to start a business was an initial investment and a good business idea. Maybe this aspect was true in every era and we are only beginning to realise it now, but the number of startups that close their doors everyday is higher than it has ever been.
You need to watch your budget like a hawk if you wish to guarantee yourself long-term profitability which is also the only way to guarantee long-term success. Your liabilities must be chosen carefully. Early on, business owners must refrain from paying too much in salaries. Saving money is not just an advice which is true for working individuals but also for businesses.
Monitor your expenses and income
Even if you have access to commercial finance, you still need to keep a close eye on the money that goes in and out of your business, if you wish to become a successful entrepreneur. You also need to ask yourself who are your biggest clients? If you run multiple businesses, are your ventures paying for themselves? Which is your most profitable business?
Asking these questions allows you to set priorities for your spending and prevents you from pouring a lot of capital into businesses which are not performing well. Return on investment is an aspect you should carefully consider before making major investments.
The same holds true for expenditures. It is common for solo entrepreneurs to work with service providers which operate on a model based on subscription. It means that tariffs can increase without warning. Termination penalties and hidden fees can hurt your finances if you are not vigilant.
Refrain from Big Expenses Initially
A popular belief amongst small business owners is that they must take big risks in the initial stages and make heavy investments in the hope of massive growth. Another name for this approach is the moonshot model as it is nothing short of shooting for the moon.
It may have worked in the case of some businesses such as Uber, but it doesn’t mean that every business which adopts this model will turn out to be a success. Uber’s massive growth is often attributed to the massive amounts of money that it spent on expansion and promotion which far exceeded the initial capital that most companies use for growth.
It would be wrong on our part to discourage you from doing so but it is a risk which can often lead to career suicide. Spending a lot of money, especially when it is not yours to spend, is the quickest way to bring down your business and life too.
Avoid Running into a Catastrophe
One cannot deny that an entrepreneur can never shy away from taking risks. But the fact that half of new startups fail within the first five years of inception, should make you wary of taking too many risks. You should accept that it is possible that your customers may desert you or your partners will let you down leading to the failure of your systems.
As a business owner, it may be difficult for you to anticipate every problem that is yet to come your way, but it doesn’t mean that you shouldn’t take steps that will help you ride out the storms. WIth an intention to fight the tough times you must buy a good business insurance. Look for a policy which covers you for lawsuits and natural disasters, the death of a partner and worker’s compensation.
To Save Money, Don’t Waste Time
Money and time are the two finite resources which are in high demand across the world and they are often mutually exclusive. The poor are paid by the rich to do their chores because those with money don’t have time whereas those with time often don’t have money.
Many entrepreneurs get lured into doing jobs which they don’t have the expertise to handle in a bid to save money. But this is a trap which must be avoided at all costs. If the growth of your business rests on your shoulders and you invest too much time in tackling tasks that fall outside your job description, you are stunting the growth of your business and it is bound to lose value.
Don’t cheat yourself
You should know that your business model is working when you are not the only one to handle important responsibilities and when there is no need for you to make sacrifices such as shortchanging yourself of its dividends. No matter how invested you are in your startup, you still need to pay for your lifestyle and for the needs of your family.
Don’t Ignore Those Who Make it Work for You
This advice is more along the lines of code of conduct, but it also has an important bearing on the finances of a small business. It is only because certain things work out in favour of a small business that it is able to succeed.
It maybe a result of their initial product offering, their ability to attract customers or their customer-first branding. But a startup that succeeds can fail too if it doesn’t take note of what made it succeed in the first place. Once you have identified the factors that made your venture successful, you need to nurture them to keep moving on the trajectory of growth.
The last thing that any business owner wants is that their financial concerns get on top of them. Instead of worrying about your finances constantly and driving yourself closer to insanity, it is better to give the simple financial tips given in this article a try.