As you start your small business, one of the biggest challenges you’ll face is how you’ll oversee the business’ finances. This is something you should address in advance by preparing a strategy for managing your startup’s money. While you may already know to keep your personal finances separate from your business’s finances, there are more things to consider. This guide can help you develop a good strategy for managing your business’s cash, assets, expenses, and investments.
Set Aside a Nest Egg
Before you can consider yourself ready to launch your business, you’ll have to have enough funding for the startup of your business. In addition to the one-time expenditures this will require, such as buying or leasing machinery, this should also include funding your operation. As a general rule, you should have enough capital to fund the operation of your business for one full year. You’ll need enough money to pay rent on your business’ brick and mortar building, utilities, employee salaries, taxes, and other costs that arise every month over that 12-month period.
Build Up an Emergency Savings Fund
In calculating your monthly expenses, at least 10% of the capital your business earns each month should go into a high-interest savings or money market account. Just as individuals must maintain a savings account to cover household emergencies, you should be building up a savings account to cover your business’ financial emergencies. Many things can go wrong with your business, including storm damage, fire, or theft. By having the cash available to cover expenses that insurance might not cover, you can keep your business running consistently throughout financial setbacks.
Shop Around For Bargains
In operating your business, you’ll need to subscribe to various services to help you manage employee benefits, customer purchases, cybersecurity, and other systems that help your business function. Before committing to any vendor, be sure to explore the pricing and advantages of each company that offers a given service. For example, looking for an ACH processing service, look to see what payment methods each service accepts. You should also examine the fees or costs of each service. By comparing these factors, you can select the service that offers the most benefits at the lowest cost. You’ll find that the cheapest option isn’t always the best one for your business.
Keep Expenses Low
While you should always be frugal as a small business owner, keeping your business expenses low in the first year is especially important. Until you start turning a profit steadily, you’ll have to prepare for financial downturns. If you can save money from the outset by limiting the machinery you buy, the number of employees you hire, and the third-party services you use, you’ll be in a much better position to cover lean months. There are plenty of online services that you can use at a low cost or for free to help you save money on your monthly operating expenses.
Use Insurance as an Investment
There are several different types of insurance that business owners can buy to help them protect their businesses. Some examples include commercial property insurance, liability insurance, workers compensation insurance, and commercial umbrella insurance. These types of coverage will help you financially recover from a broad range of situations that could otherwise affect your ability to keep your business afloat. You should be aware of the types of coverage each policy offers and update your policies annually. This will help you utilize your insurance when you experience a situation in which an insurer covers you.
Know When to Invest in Technology
While it would be nice to buy every innovation that hits the market, doing so could end up costing your business significant profits. That doesn’t mean you shouldn’t buy new technological devices, but you should only do so when the product improves the efficiency of your business or the quality of service you provide to your customers. If it does neither of those things, there’s no reason to spend money on that innovation. For example, an automated inventory system that shares data with your accounting software will help you keep more accurate records for your business. However, an inventory system that can’t share data with other applications will do little to improve your business’ efficiency and, therefore, wouldn’t be a good investment.
It can also help you take an accounting course before launching your business. A college-level course will teach you the skills and basic accounting knowledge you’ll need to manage your business’s finances. Until you can hire professional accountants or employ a third-party accounting service, this basic knowledge may be useful in helping you manage your business better.