Jumping in on the entrepreneurial bandwagon and starting your own business often seems like your personal ticket to financial independence. But truth be told, leading business to financial success is no cakewalk. The National Federation of Independent Businesses (NFIB) revealed that 30% of all small businesses fight for survival in the first two years, and over 50% of them reach a complete shutdown in its initial 5 years.
Thus, while opening the gates to the world of business is a huge step in itself, cautious steps ought to be taken to ensure your business embarks on a steady path to success.
The one key aspect that several entrepreneurs and small-time business owners tend to ignore is to have strong financial footing. Fiscal indiscipline is bound to drive any business downhill. In order to avoid this financial strain, it is essential that business owners have a specific strategy in place with respect to financial planning.
Taking simple precautionary steps throughout the course of the business is your key to avoiding any form of financial pressure. Having said that, take a look at the comprehensive list that’ll help you and your business remain stress-free if implemented at the right time…
Never put all your eggs in one basket
No matter how good the business plan looks, always remember that in business there is no foolproof plan. Business is a risky affair that can go downhill with a single or multitude of wrong moves. Thus, investing every last penny on a start-up, or even an established business for that matter, is never a good idea. Being optimistic is good, but living on the edge, a whole different story! Thus, no matter which way your business sways, always have a reasonable cash cushion to fall back to, just in case you land yourself in uncharted waters.
Separate personal and business finances
Maintaining a separate account for personal expenses and business finances is of the essence as it works out for the best in two ways. Firstly, if you make use of your business finances for your personal needs, you’ll soon lose track of your finances, leaving you with a business record that will reflect massive spending on the side that is completely unaccounted for.
Secondly, if you make use of your personal finances for your business expenditures, it becomes hard to deduct these finances from the business income – leading to you paying higher taxes to the government. Remember, any business deduction that can be accounted for always works in your favour.
Thus, avoid all the unnecessary confusion and separate the two finances. And if you still find it hard to keep a tab on the expenses and income, you can always hire an accountant to do the needful.
Keep a close watch on cash flow and maintain logs
Keeping a track of all your business activities, including transactions, is of the essence. A daily record will ensure that you do not miss out on any business activity, no matter how small a task. This daily record will give you a precise weekly report that will help in analyzing the cash flow, alongside giving you a detailed report of the expected income in the coming weeks.
By the end of the month, you’ll be in a better position to cross-check your financial records with your balance sheet and analyze any mismatch. Having the upper hand on your business finances is your sure-shot route to ensuring that you don’t land up in a pile of financial burden by the end of the year.
However, the pressure of handling a business often leads to business owners failing to maintain a steady log. Hiring an accountant thus comes in handy in such a scenario.
Revise action, budget, and strategy
Maintaining a regular financial logbook not just helps in getting a clear understanding of the cash flow, but also aids in revising the budget if need be. Analyzing this each quarter will help you draft a new strategy and set it in motion before the business goes downhill.
Further, a regular analysis will also put you in a better position to predict the future and take the necessary precautionary steps well in advance. Although there may be unexpected factors like change in government policies that will affect your business at some given point of time, staying aware of the changes and a keeping reserve in terms of investments, will help you regain the upper hand yet again.
Identify tasks to outsource
Be it an SME or a large organization, there always exist certain tasks which when outsourced, saves the company ample finances. And if you’re an entrepreneur or a small-time business owner, you could benefit from outsourcing all the more. While outsourcing tasks to freelancers within your home country is one option.
Handing over tasks overseas to a third-party agency will ensure you end up saving much more than expected. You can choose from offshore accounting services in India, Philippines, China, or other Asian countries that rank high in providing virtual assistants to companies globally.
Insure your business
And last, but not the least, always insure your business. Understanding the risks every entrepreneur takes when running a business, several policies have been drafted to fit various business models. Thus, it is always advisable to seek guidance from a financial advisor to understand which insurance policy fits your business model the best.
These policies often cover your property, protect you from theft or damages caused during natural disasters, and also against various forms of customer lawsuits. Having this protective cover will help you deal with several uncertainties and hurdles that may present itself in the coming future.
To sum up, the decision to become an entrepreneur and jump into the world of business is a bold step that becomes an immense part of your life right from the start. While you put in all the required hard work and effort to establish your business, never fail to keep a constant tab on your finances and modify your budget and strategies in accordance.
Also, do not hesitate to learn from your competitors – both their successes and failures. A better understanding of the market and your competitors will help you deploy better strategies with respect to finances and action plans.