So, you’ve started your own business and have invested your life savings in it. This is a very exciting yet terrifying phase of your life, and the risks involved are immense. However, once these risks pay off, you’ll see the profits rolling in. Then, all that effort and worry seems worth it. Although to reach this stage, you need to have highly effective management and planning skills.
After all, you can’t become successful overnight with minimal effort. Financial management is a sink or swims aspect of your business. Countless businesses have encountered major losses just because they didn’t handle their finances well. You need to avoid this fate and make sure you don’t experience this pitfall. You need to start off small and then grow with time. Initially, it will just be you, your Spectrum internet connection, and maybe one or two supporters. Once things take off, you can then focus on growing your business, but that too in a very controlled and organized manner. Therefore, you need to have proper financial management in place. Here are a few tips which should get you started on this.
Create Budget Plans
The first thing you need to do is create a budget. This budget should be thoroughly reviewed on a quarterly, semi-annual, and annual basis. But what should be included in a budget? It should have your spending plans, meticulously divided into segments. You need to allow certain amounts to marketing, advertising, supply, distribution, overhead costs, and miscellaneous expenses.
When making this budget, make sure you have realistic amounts in mind and are not spending money you don’t have. Do not make the mistake of including inflated expected revenue in your budget. Otherwise, you’ll tend to overspend and end up in the red. As your business grows, you can revise and increase your budget accordingly.
Monitor All Spending
Make sure you monitor all the spending you’re doing in your business. Whether it’s something like acquiring your product, or something as simple as paying the phone bill, you need to note it down. No matter how big or small the expense, you should know exactly when and why it took place. This will help you later when you need to figure out where your resources were used.
Keep this information noted in both physical and digital formats, and make sure it is kept in a safe place that unauthorized people can’t access. It’s also a good idea to hire a professional accountant for this purpose so that there is a sense of impartiality that you may not be able to add.
Keep Separate Personal and Business Accounts
This point cannot be stressed well enough. You absolutely need to keep your business and personal accounts separate from the first day of your business. Too many entrepreneurs make the mistake of not doing this and end up using their revenue for their personal requirements.
Therefore, you should allocate yourself a fixed salary from your business and all revenue should be in the business account. This lets you reinvest in your business and make it grow. In addition, this will also help create a boundary between your personal and work life. Often, this boundary gets quite blurred for business owners, leading to mental and financial stress.
Do Not Miss Payment Deadlines
This goes for both sending and receiving payments. If a client owes you money, make sure you give them a deadline. If you work on credit and do not collect on time, you will go into debt. So, make sure you make payment deadlines clear to all your clients.
Conversely, you need to make sure you pay your vendors and your bills within the deadline as well. Otherwise, you will accrue interest and late payment penalties. These penalties are a pure waste of your resources and also create a sense of uncertainty. Basically, you need to avoid going into debt at all costs and make sure your payments are well-balanced.
Manage Your Inventory
Often, business owners tend to get overambitious with their inventory. You should not make this error and have a realistic and manageable inventory in stock. After all, you’re not going to run out of your product in the very first stages when your company hasn’t even taken off properly. Keep the demand for your product and your audience in mind, along with the costs of stocking inventory. Balance these aspects, and you should be okay.
To sum up, you should follow these basic tips to make sure you manage your’re financial properly. This way, your business will grow and prosper with time in a sustainable way.