A small business owner survey has shown that 76% of them believe that their business is in exceptional financial health. Even though three quarters of business owners could say this, can you?
Being an entrepreneur, you need a sense of self-confidence and a firm self-belief in your ideas, in order to have the courage to invest in your own dreams, as opposed to living others’ dream, in a regular 9 to 5 job.
There are numerous challenging steps, which come in your way, when you decide to finally begin a start-up; these stumbling blocks range from the general structure of your business to staffing decisions. The financial aspect of starting the business, however, is at the top of the list of factors that are to be considered very cautiously, and required for proper planning and monitoring.
There are certain steps to guide you, in managing your finances, in a much better way, so that you’re able to see your dream come true, without it yielding financial problems.
Let’s take a look at some of them:
- Take the Financial Pulse of your Business
Just as a doctor can tell a lot about their patient’s current well-being by taking simple measurements of temperature, pulse, and blood pressure; likewise it’s extremely crucial for every start-up owner to keep strict checks on the flow of their revenue.
How much money is coming in and from where? And how much of it is going out and for what? This might sound like a basic piece of advice, but it’s critical to monitor your finances.
In the initial stages of any start-up, entrepreneurs can’t take the risk of being stuck in uncertain financial situations. Thus, it’s better to keep a vigilant eye on the flow of cash that your business is producing. You could even use “DIY” financial software, to keep a track record of your firms’ finances, yet hiring a business accountant might be the best step.
- Have Cash Reserves
Being an entrepreneur is somewhat like taking a leap and hoping that a net would appear. But, having cash reserves is one way of making sure that the net is in place before you take the leap.
Take a good look at the personal budget and decide what your monthly expenditure would be. Try having enough cash reserves, which would cover those expenses during a slow period. The general rule of thumb is that if you’re starting your own business, you ought to buffer at least 6 months of reserve.
This type of planning seems to be conservative, but there is no reason to not do it. In addition to that, it could only enhance your business’s financial health in the near future.
- Cut Down on your Expenses
This is one way that takes a page, right from household budgeting and common medical advice books. Eating less and trimming down, is probably beneficial for many individuals and spending less than what you actually earn, has saved several households as well as businesses, from going belly up.
Whilst boosting your sales is one way through which you could make more money, a similarly ‘tried and tested’ method is, reducing your expenditure.
Always look around to make sure that you’re working with those suppliers who offer some of the best deals. If you aren’t, then make changes, even if it makes you a little uncomfortable. Likewise, do not be terrified to negotiate with your long-time product merchants. You never know, they may reduce their prices, especially if they’ve got a reason to believe you’ll bail on them, in favour of their competition.
- Set Goals and Measure the Performance
Setting up a goal may not seem to have a direct impact on the financial health of your business. Yet, it is an absolutely crucial aspect of business success.
Every smart business has maybe a 1 year plan, a 5 year, or even a 10 year plan. So, sit down and provide yourself with a chain of specific goals, such as revenue targets, or new and potential clients gained, and then track how well the goals are being met.
You could also set distant future calendar reminders. In this manner, you’ll be able to spot issues coming your way, as well as get a sense of what has worked till now and what has not. You will certainly acquire valuable information, which may encourage you to pivot and refocus the business, for maximum profit.
- Run a Tight Ship when It comes to Invoices
An individual who has a poor eating, hygiene and exercising habit cannot be in a strong, healthy state. This is when taking proper care of your body becomes crucial. Similarly, this principle could be applied to your business’s financial health as well.
Sloppy invoicing habits could lead you to lose profits and form tense relationships between you and your customers. In order to avoid this pitfall, you ought to engage in good invoicing practices. Be completely clear and transparent about your pricing, cover every aspect carefully, and ask questions to make sure you’re being understood.
Bear in mind to always credit check the new customers and ask for a deposit when they make an order. When billing time rolls, ensure to send the invoice on time, and ask for an acknowledgement that they’ve received it. If managing multiple steps like this is something you struggle with keeping on top of, consider automating part of your invoicing process, Invoice automation reduces the risk of errors and also frees up time so that you can focus on your primary operations so that things always run smoothly.
Of course, you could take out invoice finance, to tackle issues caused due to late payments by your clients, but it’s better to take pains in order to make the invoices detailed and clear. This way, everyone involved could understand them.
- Review your Insurance
Having the best health insurance is crucial to being in the best of health, as mishaps can happen anywhere and at any time. For similar reasons, when you start a business, you must take out insurance, so as to keep your business healthy.
Ensure that the business has just the right amount of professional liability insurance, product liability insurance, car insurance, employees’ compensation insurance, etc. if you run a business from home.
- Envision your Future
There is proof, which recommends that picturing being healthy could actually assist individuals in becoming healthy. You could do the same for your business’s financial health, by envisioning where you would like it to be, in 1 year, 5 years, 10 years, and maybe even longer.
You must always have a goal in mind, as it could get you where you would wish the business to be, financially.
- Look at Opportunities for Growth
Remember the very first tip? Having regular checks on your revenue and expenditure? Keeping a track of financial records?
These do come in handy, especially when you are searching for opportunities for growth. Every year, analyse the financial statements by keeping the financial goals and projections in mind. Doing so, will provide you with valuable insight on how the goals must be adjusted for the upcoming year.
- Seek Alternative Financing
At times, even the ones with the healthiest sleeping, exercising, eating, and hygiene habits require at least a little bit of assistance in the form of vitamins. But, if you’ve unfortunately landed into some financial crunch or lack the means to carry on your business venture, you can always apply for loans from the bank and take alternative financing.
There are several loans that you could apply for, keeping in mind the financial nature of the business. Always get in touch with the bank in order to comprehend the options better, since they’ll be able to assist you in indentifying the right option, which could serve the purpose you’ve got in mind.
To sum up, when you’re armed with the right tools, an ideal plan, and a guide on how to use it, along with the knowledge it takes to keep the business running smoothly, and of course, in perfect financial health, your start up could soon turn into a successful venture.