Everybody manages their finances differently. There really is not one-size fits all model. When you’re in startup mode, there are so many things running through your mind.
You need equipment, marketing, a website, employees, etc.
With so much going on, new business owners may not manage their business finances efficiently
Here are 5 tips for managing your finances as a startup:
1 – Create a Financial Forecast
I’m sure you already have a budget in mind and have an idea of where the money will be allocated, but creating a budget is more than just understanding where your expenses will be spent.
You need to develop a Financial Forecast Model so you can measure your expenses vs your revenue to ensure that your business can and ultimately will be profitable, especially in the early stages of your business.
Most startups may run at a lose the first year or two. So develop a one and three year financial forecast. This way you will be able to see how your company’s profits can go from the red to the green.
It’s also important to measure your expenses against your potential revenue. Far too often new business owners fail to connect these dots when developing a budget. Ultimately leading to that business failing.
2 – Separate Personal and Business Accounts
As an entrepreneur, it’s important for you to keep your personal and business accounts separate.
You should have a separate business bank account and business credit cards. When spending money only use funds from the business bank account or credit card for business related expenses.
Keeping these accounts separate will allow you to manage your taxes more efficiently. This will make it easy for your accountant and the IRS to see the difference between your personal and business accounts.
Plus in the event your business is sued, it will reduce your legal liability and protect your personal assets.
3 – Consider consultants instead of employees
Consultants are a great way to get the results without the extra cash.
Need to work on advertising?
Need a website developed?
Want someone to manage your books?
Hire a consultant and save yourself the need for Worker’s Comp Insurance, sick days, vacation time, etc.
New hires can cost your company an average of $5,000 per hire, that’s in addition to their salary/commission. Consultants cost less overall and can provide stellar results for your business.
4 – Don’t outsource too soon
I know what you’re thinking, “You literally just told me to outsource.”
I know I did. But there are a lot of things you can do for yourself before you outsource.
Do you have some experience in marketing and it doesn’t drain your life? Try it yourself before outsourcing.
Can you balance your cash flow? Look into accounting software to assist with this task.
Need someone to handle your schedule? Use Google Calendar to set appointment times (yes, you can email your availability out to clients via Google Calendar).
If you’re capable of doing it and it doesn’t add frustration to your life, do it yourself until you’re ready to outsource.
5 – Don’t undercharge
This is a common problem with startups.
As new entrepreneurs, you want to undercharge so you can build your customer base and generate sales. The problem is that undercharging leaves you less than profitable and clients are less likely to spend again if you up the pricing drastically.
Undercharging will have you playing financial catch-up for years to come and no one wants that.
Avoiding these pitfalls can save your business. Adopting these simple business practices can have you profitable for years to come.