- Plan for what your small business needs now and for what it may need in the future.
- Keep your accounts accessible, prioritize functionality over style, and get ready for rainy days.
- Make sure to track your expenses and talk to your financial advisors.
‘Knowing is half the battle’ goes the old axiom. But if you’re an entrepreneur, you probably don’t invest in its wisdom.
There’s certain romanticism in the “risk” of a new venture. Often, startup and small business owners run full speed ahead in opening a business without a formal financial plan, because they trust the strength of their idea.
This gung-ho approach may pan out when people get lucky, but that doesn’t make it the “correct” approach. Word to the wise, it’s best to set time aside to prepare both for what you currently need, and what you may need in the future, before you undertake the life-changing venture of starting your own business.
So if you’re about to begin your journey as an entrepreneur, start with our top 10 list of the most important financial decisions you’ll need to make before taking off on your small business adventure:
The 10 Financial Considerations Entrepreneurs Need To Make
1. Keep Accounts Simple
As a startup, you don’t need a complicated accounts system. What you need is a solution that is user-friendly and simple to understand. Having your accounts in place but migrating to a more diverse system later is easier than starting off with a more complex accounting structure than you need.
2. Assess Payment Collection Options
You may have decided to open up a point-of-sale or deal exclusively online. Regardless, you need to know how you’ll be accepting your customers’ money. The most common options are cash-only or accepting credit card payments as well. You can also look into going the extra step with the latest in payment collection – NFC payments. If you’re going the NFC payments route (such as Apple Pay), be sure to look up a reliable credit card processing company that can take care of this side of your business.
3. Investments – Function Over Form
Starting out, the assets you invest in should be the most cost-effective they can possibly be, not the coolest. As an investor in your own company, you want your money to bring back a return that dwarfs your original investment, right? Keep that in mind when you’re eyeing a fancy 1,000-prints-a-minute laser printer when you can make do with an inkjet, or viewing new office digs in the trendy area of town.
4. Team Stability
Don’t waste too much time or too many resources on building the “perfect team”. Perfection can’t be bought, it has to be developed, so work with a stable team you can trust, and empower them with your own passion for making the company a success. If you’re hiring through a recruiting agency, create job descriptions that detail exactly what candidates you need, and try to negotiate a lower rate. 15% is usually a good place to start.
5. Prepare For A Rainy Day
In small businesses and startups, the likelihood of facing financial issues somewhere down the line (based on market conditions) is extremely high. You need to accept this eventuality and plan for it. It’s always better to keep a percentage of your total startup capital set aside in case of emergencies, rather than pouring it all into your business from the get go.
6. Set Financial Goals
While startups take time to get off the ground, you still need to build a timeline for your business. When should you break even? When should you start turning a profit? What should your profit margin be? And when can you afford to hire more team members? Having these (and other such) projections in place gives you direction, as well as benchmarks to evaluate how your business is progressing. For a metric like profit market, it can be helpful to find an industry average to compare to. If you’re starting a restaurant, for example, the average industry profit margin is between 2 and 5%.
7. Understanding Your Taxation
The taxes you incur will vary based on what business you’re conducting, where you’re conducting it, and on what scale. Make sure you know what you’ll owe to the state and federal government before you begin your venture, and include it in your pricing, budgeting and projections plans. IRS.gov is a great resource for everything you need to know about income tax, estimated tax, self-employment tax, employment tax, and excise tax.
8. Track Your Expenditure
You need to spend money to make money, and that’s why it’s critical to log all of your cash flow. Keep track of where you’re spending and how much to make sure your books remain balanced. By closely recording where your money goes, you will also help you figure out where you can cut back. A simple way to try it out is with Personal Capital’s Cash Flow tool.
9. Create Financial Relationships
Establish a friendly connection with bankers, vendors, suppliers and anyone else you will have business-related financial dealings with. These relationships go a long way towards getting you rates and service that go above and beyond normal remits, and each minute and dime you save will help your business grow.
10. Plan Your Next Move
Startups can start slow, implode, or explode. You need to know what you’ll do in every eventuality before you’ve even begun. A business continues to profit or recovers from a crisis only when leadership keeps calm. If you take the time now to plan for the best, or worst, you’ll save yourself from making rash decisions.
Above everything else when you’re starting your own small business, believe in yourself and your idea, and work as hard as you can. Good luck!