If you have an excellent business idea that you want to get off the ground, you’ve probably already started scouting office space or thinking of just the right company name. Have you thought about how you’ll finance your big ideas, though? One of the biggest reasons that new businesses fail within the first year is because they leap in too soon and without the safety nets of understanding their finances or having a professional help them through the startup process. These financial tips could help you slow down, take a few breaths, and focus on opening your company’s doors at a slow, steady, and hopefully successful pace.
Create Your Business Goals Early
Before you can start implementing financial tips, you must first determine what you want from your business by setting goals. Look at the big picture first by writing down what you want your end goal to be. Use it to work backwards, creating a map to your goal as you bring yourself back to the current moment. Create stops along the way for points where you’d like to fulfill short-term goals and then spend some time calculating how much you expect your map to success to cost you upfront.
Develop an Annual Budget
Develop an annual budget to help you determine how much money your company needs to make to at least break even each year. It should include the cost of your facilities, including warehouses, offices, and storefronts, fixed assets like vehicles and equipment, materials and supplies, and other costs, such as licenses and permits, insurance, utilities, and so on. Then, break down your budget to determine about how much you owe landlords, vendors, and other debtors each month.
Separate Your Personal and Company Finances
One of the biggest mistakes new entrepreneurs make is failing to separate business finances from personal finances. As soon as you choose a business name and register it, open a commercial bank account and use it only for business expenses. When you use the same account for both sets of expenses, you run the risk of overspending, not to mention finding yourself in a world of complicated situations when it comes time to file your personal and business taxes. Use this same rule for any loans and credit cards you have for your business as well.
Purchase Insurance Policies
Research and purchase your company’s insurance policies as soon as you can. You’ll need several policies to best protect yourself and ensure you’re operating within the law. Make professional liability the first policy you buy, as it protects you from any claims of negligence due to mistakes in products or services provided. You’ll also need property insurance, business interruption insurance and, if you have employees, a workers’ compensation policy.
Some finance experts also recommend you purchase a life insurance policy for yourself and then learning about how you can borrow against the policy to finance major purchases (such as helping you start a business). However, because this is an advanced form of wealth management, it is absolutely necessary to do all your research first, including reading Bank on Yourself reviews, to decide if it could be a good option for you.
Avoid Spending Too Soon
When your company first becomes a legal entity and you have big dreams in your head, it is all too easy to get ahead of yourself and spend too much of your working capital on ill-planned marketing, excessive inventory, or other things you don’t need right away. When you spend prematurely, you risk setting yourself up for failure by running out of capital before you start bringing in profits. Consider working with a commercial finance advisor to help you determine where your initial capital would best be spent.
Remember, every new business is a little different, and the industries can be polar opposites. To make the most of your startup company finances, ensure the advisor you hire has specific knowledge of your industry and the best methods for making your working capital count.
