Insufficient cash flow is the number one reason for the failure of new enterprises — as many as 82% of all businesses that don’t make it fall through for this reason.
If you’re just starting out and you want to avoid this fate you need to be super smart about your money management. It’s not enough to find initial funding and hope for the best. You have to be prepared for all kinds of scenarios that could send your business into bankruptcy.
Here are some practical tips to help you stay on top of your finances all the time.
There’s absolutely no chance you’ll make it if you’re not meticulously organized about your finances. Chronicle all your financial information with the utmost care, and find a system that makes it easy for you to always know where you’re standing.
Have all your financial records in one place and be aware of even the tiniest expenses. You’d be surprised at how much money can slip through your fingers for small things such as unnecessary office supplies.
You can keep track of all your current expenses by categorizing and prioritizing them and then taking care of them systematically. That way, you’ll avoid spending money on things that could have waited and not have enough for something urgent.
Reduce Your Tax Bill
High tax rates can be discouraging as you may be forced to pay enormous fees, which will deter you from growing and improving. They may limit the number of your employees, stop you from expanding your office space, and much more.
That’s why you should make sure you’re not paying more than you need to, and you can do so by taking advantage of all the tax breaks that you can. Check if you can have any tax benefits and see if there are easy ways to become eligible. It’s not a bad idea to work with an experienced accountant on this issue.
Save Wherever You Can
This may be easier said than done, but there’s always room to save if you look at your expenses closely. Think both large and small when considering your ways to cut back on your costs. Maybe there’s unnecessary production waste you can eliminate, or you keep buying supplies that no one really uses.
Instead of having ten employees who are bored half the time, slash that number in half but make the most of your workforce. If there’s a task that needs to be done every once in a while, don’t hire a specialist for that — outsource it. Keep monitoring your expenses, and you’ll always uncover new opportunities for saving.
Keep Personal and Business Finances Separated
One of the biggest mistakes new entrepreneurs tend to make is blurring the boundaries between personal and business finances. This can be dangerous in so many ways — your business could suffer on account of personal spendings, and vice versa.
As soon as you start your company, make sure to open a separate business account so that you’re not tempted to spend your company money on anything private. You could even allocate a monthly salary for yourself, which you can pay to your personal account and never exceed that sum. These measures will help you maintain a clear boundary between the two worlds in financial terms.
Set Smart Goals
Making risky decisions in order to try and reach your goals quickly is not a wise idea. You can build a strong and stable business only through smart and careful planning and taking it one step at a time.
Create short- and long-term goals and budget for them accordingly. Big changes don’t happen overnight, and if you want to grow, you need to make a series of smaller but realistic and achievable goals to conquer one at a time.
Investing too much in an uncertain venture could pay off, but if it doesn’t, you could lose everything and have to start from scratch.
Maintain a Good Credit Score
It’s astonishing that many people are not even aware of their credit score. If that’s you, it’s time to request a credit report because your business might depend on it. There’s no quick fix for a bad score, but the best you can do is start fixing it now.
A good credit score can be essential in your search for funding since everyone will want to check it before deciding to invest or lend you money. So keep up with your payments, meet payroll needs, make smart purchases, and do everything that’s in your power not to have negative info on your credit report.
Enlist Professional Help
No matter whether you sell products online, offer landscaping services or earn rental income abroad, your business could benefit from professional financial help. You may think you’re on top of your expenses, but an experienced accountant may believe otherwise.
If you’re shying away from hiring an accountant or even a financial adviser because you believe their services are expensive, you’re wrong. These professionals can help you cut down your costs, improve operational efficiency, and steer your business in the right direction, so they more than pay off in the long run.
As a first-time business owner, you’ll learn so many tricks of the trade from them.
Have an Emergency Fund
It’s not easy to save for a rainy day when you need every penny to kickstart your enterprise. However, having an emergency fund could save your business from certain failure when the going gets tough.
There’s no limit to how much your new company can earn, but especially in the first years, there’s also no limit to how fast and hard it can crash. Until your business is stable and established, your earnings will fluctuate wildly, and you need to expect the unexpected.
Having some money stashed away could pull you out of the gutter and get you back on your feet when you think you’re doomed, so it’s worth trying to allocate some funds for emergencies.
If you’re not sure how much you should put aside, try to save at least three months’ worth of expenses and hope you won’t have to use it.