Let’s talk about how to manage finances at the very start of a business and not to allow financial mistakes made by beginning entrepreneurs.
Many beginning entrepreneurs, seeing the ultimate goal of their business, making money allows typical mistakes in managing money at the very start. For many of them, it becomes fatal mistakes that lead to the fact that the young business is closed because … “he did not have enough money.” We have summarized the recommendations of Western and Russian financial consultants in a few simple rules that will be useful to any start-up business, regardless of its scope.
Separate personal finances from your business
This rule, perhaps, is the first, which must be taken as a rule, and which is not always followed even by experienced entrepreneurs. It is important to separate cash flows when buying things necessary for business and for personal use, cash for hospitality and dinner payment in a restaurant with friends.
Most often this situation occurs when an entrepreneur works alone. “What’s the difference? Everything is taken from one pocket and then gets there! “. Formerly, yes, because you invest personal funds and take profits for personal needs. However, if you do not keep separate records, you can not correctly assess the work of capital in your business, analyze costs, forecast costs worse, and moreover, increase the risk that you will not even notice how the financial difficulties of the business will become personal.
Keep your costs at the lowest possible level
If you start a business from scratch (yes, it’s possible) or even if you have some start-up capital, at the first stage, spend only on what is necessary to start your project. If you are doing a relatively new product or service, do not forget about the principles of an “economical startup”: make the simplest version of a product or service that reproduces your idea exactly as much as it takes to assess the demand and adjust your idea. If you start a typical business with a predictable cost structure and payback period, do not forget that the conditions are always different, what worked for others may not work right away from you, so create the simplest and cheapest infrastructure for the first time , to evaluate your opportunities.
Learn to receive some services for free or as barter. More often apply for help to your business and personal network of acquaintances, search for favorable offers, bargain with suppliers, search for cheap channels of advancement. Probably, later this strategy will not be very justified, but at the first steps you will be able to attract the first buyers with minimum expenses and get important experience. If this experience is unsuccessful, it would be nice if it cost as little as possible.
Starting a business is not the time for high salaries, unjustified expansion of staff. Your ambitions will push you to do something steeper than competitors, but this can lead to the fact that you will bury your first business under a heap of costs before customers learn about your benefits. Try to compete for the first time at a low cost and unique service.
Maintain management accounting
Fix all your expenses and incomes, defining for yourself the structure of the articles, on which you will conduct both planning and accounting. Accustom yourself to this from the beginning. At the upper level, it is common to divide expenses for core activities, payroll, marketing (attracting customers), economic activities and taxes. Revenues – by main activity and related (for example, partner payments). Over time, articles may change, their detailing may increase, but understanding the structure of your business’s finances should evolve from the first days. This will allow you to manage the business on the basis of specific figures.
Plan costs and revenues
One of the most important components of not only financial management, but business as a whole is the budget. Many beginning entrepreneurs do not understand that you can budget without a flow of customers and a lot of expense items. However, do not have a financial plan and the most common financial model of business, the same as doing business without a purpose. Analyze the market, your opportunities at the start, make a forecast of revenues and expenses and start doing business according to this forecast. Your very first forecast, will surely turn out to be erroneous and will require a revision very soon. It’s not scary. At first, your forecasts will require regular adjustments, but over time, you will find the market and learn how to manage the levers of business so that financial plans are executed. A company that has learned to plan well and fulfill its plans is stable in the market;
In addition, do not forget about the large expenses that can be expected in the future. This applies to taxes and deferred liabilities. In addition to budget management, note important financial events in the payment calendar.
Maintain regular monitoring of cash flows
The flow of money is the circulatory system of your business. At the first stage and in the process of growth it is important to keep a constant monitoring of what is happening on your account. While your business model is not sharpened and undergoes constant changes, it is important to keep track of the key figures – total revenues, total expenses, profit for the period (per day, week, depends on the number of transactions per unit of time) and account balance. In the first period it is important to learn how to manage the cash balances. If you see that the money in the account ends, encourage early payments from customers to discounts or reallocate resources to get payments from current customers faster. In addition, try to work with customers on prepayment, and mutual settlements with suppliers to conduct on the fact of work.
Increase your financial literacy
Doing business is a constant flow of decisions related to financial management. With the growth of business, you will have to make more and more important financial decisions. Even when you have a competent financier in your team, you still need to be able to talk with him in one language, formulate business tasks in terms of financial figures. That’s why, from the first steps of your young company, pay attention to increasing your financial literacy – read books, watch webinars, go to seminars and, of course, communicate more with more experienced small business owners on financial management.
For sure, these rules, at first glance seem to you quite obvious. However, apply each of the described items to your business and try to assess where you are missing something.