Your financial situation as a business owner is going to be rocky in the first years of business. This is especially true if you do not come from money. This means you are going to have to learn how to handle money and think about money in new ways to be a successful entrepreneur. As a result, the way you think and handle money will even change how you do business for the better. Here are five tips to get you started down the right path with your business’s finances.
Available Cash Matters
It may not have sunk in yet, but it will soon. Your startup may have enough money to get you off the ground, but in a few months things are going to get tight. This is mainly because you are unlikely to do as well as you had hoped. Unfortunately, success with a startup and its finances requires more than hopes and dreams. Rather, what you need is a road map to available cash, and you should have a written plan to precisely how you plan to acquire the money needed to keep your business operational for the next two to five years. If you have no such plan in place, then you have no business starting your business. If you do have such a plan in place, then you have a solution to the major cause of why most startups fail in the first few years they are in business.
Cash Flow Management
What made John Rockefeller such a great entrepreneur was that he had an excellent grasp of cash flow management. Even before he was a big time entrepreneur, he was disciplined in the practice of keeping a strict ledger. Like Rockefeller, you should be disciplined in knowing where every penny is coming in from and where it is going out to also. It is lack of discipline in this one area of business finances that gets more entrepreneurs in trouble more than anything else.
A lot of new entrepreneurs get the idea that they must spend excessive amounts of money on furniture, office space and showing off. These entrepreneurs usually do not make it through their first year with all their wasteful spending. A startup really has no money to waste like that. Rather, what you want to adopt is the policy of being as cheap as humanly possible without destroying your business in the process. There is a point that is too cheap, but being reasonably cheap is extremely functional. A little secret to consider is that you can often find slightly used furniture that is built to impress for pennies on the dollar, and you can often negotiate for far cheaper office space. No one said you could not be cheap when showing off, right?
Have Multiple Bank Accounts
You can have numerous accounts across multiple banks. Some of these accounts should serve as places where you stash excess business-related cash. One account might be intended for business supplies. Another account might be reserved for business growth. Another account may be just for payroll expenses. As you faithfully budget money into each of these separate accounts, you are building funds for various business related issues that you will be preparing for in advance. Your quarterly savings habits in each of these accounts should provide you with accurate projections for when you can move forward with different business-related projects. You could even have nonspecific accounts that just reserve money in case something unexpected comes up. Now, there is a brilliant idea. Having accounts at banks can also help you get construction loans if your business expands.
Carefully Assess Your Payroll Expenses
While it is nice to want to pay your employees top dollar for the job they perform, it is not always prudent to start them out like this. In fact, you may be overestimating the value of their performance rate with respect to payroll expenses. You need to make sure that you are paying your employees according to their level of performance, and start them out on the low end of the pay scale until you can determine what their actual pay should be. Overpaying employees for very little performance is simply bad for business. Reserve the best pay for the best performers, because these employees are earning your business the most money per dollar spent in wages.
There are many ways you can save money and beef up your company’s finances. The trouble is that talking about it and doing what must be done are two very different realities. Once you make a plan of attack to clean up your company’s financial situation, you must have the courage to see it through.