Managing finances requires constant vigilance. Many aspiring entrepreneurs are almost solely devoted to making the products they love or developing the big ideas they have come up with.
One of the biggest mistakes people make is thinking it’s all about the products and services they offer. With a mindset like that, an entrepreneur may feel like managing finances is a tedious chore.
Problems emerge when they start treating them as such. What your business has to offer will earn you a place in the market, true. But, if you want to survive there, proper finance management is vital.
Pay Yourself
Many passionate business owners tend to invest everything back into day-to-day operations. There’s no doubt that extra capital helps business growth. Still, that doesn’t mean you should sacrifice paying yourself to help your business thrive.
However, if the business doesn’t turn out as you would like, it’ll all be over with you hanging dry. You’re an employee just like everyone else, even if you are employing yourself. You need to compensate yourself just like you compensate others. Never forget that you’re part of the business in more ways than one.
Educate Yourself
Invest time in learning about different aspects of finance. If you don’t already know how, learn to read financial statements. You’ll know how to tell where the money is, how many hands it’s changed, and where it comes from. Financial statements have four key details – balance sheet, income statement, flow statement, and statement of shareholder’s equity.
The balance sheet relays information on shareholder’s equity, liabilities, and company assets. The cash flow statement analyzes financial inflow, financial outflow, operating activities, as well as investments.
The amount by which the business is funded through preferred and common shares is represented in the statement of shareholder’s equity. When you want to know how much revenue the business has earned within a specific timeframe, you can read the income statement.
Separate Business and Personal Finances
Your finances should be the line that separates business and pleasure. Get a business credit card and use it for its intended purposes. That way, you’ll stay in control and be able to track your outlays.
Opening a separate savings account would also be a wise step. You can use it to gradually build a corpus by transferring a certain percentage from each payment that you get. For instance, you can use those funds to pay taxes.
Drawing a line between the two signals responsibility and will improve your professional and personal image, especially among banks and investors. You’ll also keep the government happy. Such fiscal responsibility allows you to reap the benefits of various tax deductions.
Funding and Investment
If you want your company to thrive, it’s important to secure funds for growth opportunities. Investing a portion of your profits into other lucrative endeavours is one way of moving in a healthy financial direction, provided that you have the skills and knowledge to do that.
For instance, you can learn to trade and secure additional funds for your enterprise that way. Naturally, you’d want to make sure you learn all about the right strategies and risk management before you start. If you’re completely new to the game, make sure to start from the trading terminology and cover the basics, and then slowly make your way into the process.
If you know exactly how you’d invest money, you can always apply for a loan in order to secure the necessary funds for growth. Employees appreciate when their employer invests money into the company and therefore in their careers. If you don’t waste all of your profits on personal matters, you will ultimately create more value for your company.
Credit Score
The benefits of maintaining a good credit score are numerous. With a good credit score, lenders are more likely to offer you loans with lower interest rates and better terms, as well as enough capital to grow your startup.
A bad credit score, on the other hand, may make them avoid you like the plague. If a time comes when you need emergency funds, and there are many such surprises with businesses, you’d want to be on good terms with the banks.
So, even if you don’t need a loan now, that doesn’t mean you can allow yourself the luxury of having a bad credit score. To increase it, you can take out credit cards, use them regularly and pay them off even before they are due.
Conclusion
Being an entrepreneur means you have to work around the clock. There are always some issues that have to be dealt with immediately. No matter how busy you are, take some time every day to plan your finances for the future.
Guest Post: About the Author
Anna is a tech writer and researcher interested in startups, web development and business innovation. She is passionate about motivation, self-development and yoga. A recent hiking enthusiast, she enjoys exploring new trails and breathtaking views.