There are hundreds of aspiring entrepreneurs that start their business every year and an equal number that pull their shutters down prematurely due to financial crunches. This is the result if improper and inexperienced management of finance by the entrepreneurs. The primary reason for such mismanagement is that these business owners do not have their financial goals clearly defined and underlined. As a result, they do not know which way to go themselves and which way their business is moving, both resulting in premature closure.
Therefore, if you are one of those startups and want your business to move on to the second year successfully and carry on that way, here are a few strategies that you should follow for a better and more result driven finance management. This will prevent the cash crunch in your business which ideally is one of the top reasons behind startup failure.
Money as such is just like time both being a finite element that you will need to manage, control and allocate extremely judiciously. As you are a startup you will need to be all the more cautious in your finance management as you will already be lean on your capital. This will ensure that you and your business both are free from the complexities of finance and will be able to make your new venture in a successfully old business.
Different Types of Business Costs
A business will involve different types of costs that you need to know, distinguish clearly and underline. For this you will need to have a dedicated section for business finance and accounting in your plans. This section must clearly outline all the necessary and different expense areas associated with the operation and running of your business. The major expense areas for any business are:
- Legal costs
- Cost of establishment
- Purchase of material, equipment, and machinery
- Cost of production
- Management and operational cost
- Sales and marketing costs
- Staffing costs
- Business insurance cost and much more.
If you are keen on online business rather than a brick and mortar establishment, then the cost of infrastructure and establishment will be less. However, when you have a clear and better picture of all your business expense areas, you will be better off with a proper idea on where you should look for funding, how much you need for the business and how exactly you must allocate your funding or capital.
Creating a Budget
Once you know the expense areas of your business you must now focus on creating an organized budget for it and make sure that you strictly adhere to it. This is one of the most significant aspects of business finance management because first-time entrepreneurs may have a proper budget created with or without the help of an expert but often fail to stick to it which is entirely a personal attribute and can be taught but cannot be instilled.
This is the primary reason why most businesses, as well as individuals, cannot manage their debts taken from banks or any other sources such as liberty lending and end up closing their business or filing for bankruptcy.
Ideally, you should have three distinct columns when you set the budget. These three individual expense areas are:
- Urgent and
- Extra or Avoidable.
Such categorization will help you to allocate your funds more strategically. This will also ensure that the key expense areas of your business receive a fair allocation if not the most. Apart from that proper categorization of business expenses in your budget will prevent draining your treasury gratuitously on any extra or avoidable expenses and ensure an organized finance management.
However, all your efforts will turn futile if you do not stick to it. Therefore, make sure that you check and review your budget at the end of each month. This will help you to find out any discrepancies between the actual expenses and the estimated amount. If there are any you must make sure that you modify your expenses immediately and put your business on the right track.
Educate yourself well
Since finance and its proper management is a serious matter you will need to be well educated about it and know every aspect of it along with the proper knowledge of all major financial terms such as:
- State tax
- Soft inquiry
- Subsidized and unsubsidized loans and others.
If you are not well acquainted with these terms you can take help of the different articles and blogs that are related to finance allocation, management, expense areas that are specific for your type of business. You may also go through different podcasts and webinars on business finance management to further enhance your financial knowledge.
Learn to save
Just like any other forms of finance management saving money is essential for your business as well. Saving will help you to deal with the sudden emergencies and at the same time will leverage your opportunity so that you can boost up your resources further. You may follow these tried and tested money saving tips for businesses:
- If you want to save on the rent and if your business permits you must go for a shared working space
- To save on the cost and space you may try virtual networking and communications with your clients and employees both
- Instead of hiring an entire team of highly experienced professionals you may try hiring talented and dynamic interns
- Outsourcing a few of your business jobs will help you save a lot of money on staffing and overheads and
- Use open source and cloud-based software programs to save a lot of money on business software.
You must also keep a check on your accounting department to prevent any cash crunches in your business due to unfettered invoices, late disbursements from clients and other reasons.
Last but not least make sure that you have a good credit score. Check it every month and improve it if need be. This will help you to find some solid funding from different sources and investors which is crucial for an aspiring startup owner.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.