It is not easy starting a new business. You mostly start with a one man CEO taking care of all the nitty-gritty all at one time. It is the aggregation of a lot of things that make your business a success and one of the most challenging aspects is financial management. There are a number of pitfalls that you will encounter for the first time and being prepared is your best support system.
Build a Cash Reserve
It is not necessary that your business idea needs a lot of investment to begin with but you might not start making money from day one and one needs to plan for that. At a minimum you need to put aside tax irrespective of your margins.
Look at your Debt/Income Ratio
Look at your current debts, your credit card expenses and plan on repaying any personal loans that you might have taken. You might not need external financing at the start but having a debt will reduce your chances of future capital injection and help you keep a check on your credit score.
Keep a check on your investment
Be careful of the amount of the investment you put in initially – swanky office, computers and inventory. Some of these costs can be minimized. Instead spend time on building a good product and having loyal customers. One recommendation is to start from home or look out for deals such as “purchase government surplus products”
Personal vs Business Finances
It is a good idea to keep your personal and business finances separate. It will help you build credibility and also reduce your personal liability. It is not necessary to have a separate bank account but nevertheless helps you keep track and cleaner finances. Don’t overlook the importance of selecting the right bank for your business
Get some advice from tax accountants and advisors so you don’t end up paying either too much or too little taxes. The experts do not always come at a cost, if you have the right questions, the initial consultation might come for free.
Get paid for your effort
It is easy to start putting back all your earnings into your business, not realizing you need to manage your personal finances. It is essential to keep your business and personal use separate and draw money as per your needs.
”To err is human” but this is a good reminder of things to keep in mind when making those business choices and decisions.
Thanks for reading, and until next time… stay WISE!