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Starting a business isn’t as simple as some people would have you believe. There’s no denying that it requires a lot of hard work and determination in order for your business to be successful. One of the main factors you need to consider when setting up a new business is the financial side.
Many companies fail before they have even had time to get the ball rolling because finances were not considered properly. To avoid this happening to you and your startup, you need to make finances a top priority. If you are considering entering the world of entrepreneurship, here are five things you need to consider to help your business thrive.
Keep personal and business finances separate
You may be tempted to use some of your personal finances at the start of your business venture to give it a boost but you should avoid doing this. In the long run, it won’t be the best solution and you need to keep your personal finances safe. Set up a business account as this will help you keep track of your business expenses when you need to file them for tax purposes.
Having a separate business account can also help you build your business credit rating. A good, strong credit rating is vital for any business as this will give lenders confidence that your business is capable of repaying any debt back and will do so. You can help build up your business credit rating by applying for a business credit card. This will allow you to build a credit history for your business whilst eliminating the need to use personal credit cards.
Hire someone to monitor all spending
When your business is new, it can be hard to keep track of what you are spending money on and what money you have coming in, and it can be easy to miscalculate because of this. You need to know where all your finances are up to because if you don’t stay on top of your cash flow, you could end up putting your company in a bad position financially.
To help you stay on track of your spending, you can hire a bookkeeper or an accountant. The responsibilities of a full charge bookkeeper include keeping records of the business’s day to day financial transactions, preparing management reports, processing payroll, and any invoices, and taking a trial balance. An accountant can help prepare your business’s tax returns, review financial statements, produce reports, give you perspective on your business’s overall finances, and give you advice on important decisions that could impact your business financially.
Take out business insurance
To save you money in the long term, it’s worth considering taking out business insurance. It’s an important decision to make to ensure you have the right type of coverage, but it will pay off eventually. Business insurance can help with things such as accidents, data breaches, and legal claims, but it can also give you access to risk assessments and cybersecurity consultations.
Without business insurance, if your company does come into any tough financial challenges, you may have to pay for these out of pocket and your business may not survive. This is why it’s important to make sure you have the right coverage as it can protect your business from going under. It’s also worth considering purchasing property insurance in case any damage is caused to your business premises that can cover lost equipment, or taking out business income coverage should you experience something like a power cut that prevents you from carrying out your services.
Plan for the worst, hope for the best
Running your own business can be tricky, and when it’s going well it can be hard to imagine a bad situation happening, but unfortunately, these things do and when you least expect them. It’s important to plan for the worst-case scenario to cover all bases. A good way to prepare for any hardships is to invest wisely. While it is important to save money, spending it and investing is a good way to bring more money in.
When you make smart investments, it can help take your business even further. Without an employer funding your retirement plan, you as an entrepreneur are responsible for your own retirement. You need to think about the future and do what you can in the present to ensure it’s secure and stable. Investing properly can help allow your business to grow and develop. Start thinking about your retirement plan as early as possible, as this will give you plenty of time to build an adequate retirement fund.
Put aside additional funds for emergencies
Running your own small business can mean your finances will fluctuate throughout the year and you will have irregular income at times. Having a backup fund when this happens will be hugely beneficial as it will reduce stress and make life a little easier when you experience this kind of situation. You don’t want to be dipping into your personal savings to help cover costs. Start working on your emergency fund straight away to prevent your business from really struggling and potentially closing down for good.
When your business is doing extremely well, that’s when it’s best to put extra money aside. This will help during those times when things are hard and will ensure you have enough cash to cover bills. Emergency funding should only be used in the most difficult times and in an ideal world, it wouldn’t have to be used at all. However, it’s best to have that option should you require it.
Bonus: Ask Yourself Whether or Not You Want Employees
Alright, when starting out, sometimes you just can’t finance having an employee, but in general, do you ever see yourself hiring an employee at all? It’s also really going to depend on what your business is too; if you’re running an at-home business, then the chance is higher that you might not need and employee, but if you want to have a business in the service industry, such as running a restaurant, cafe, bakery, something like that than it’s going to be best to hire help ASAP. Sure, it’s going to mean that you’ll have to look into a restaurant staffing guide, but so what? It’s so important to understand that while yes, employees cost a lost of money, you’re going to build your business so much faster just by having one!
Conclusion
The above considerations are just a few examples of the things you can do to ensure your business finances run smoothly. Make your finances a top priority when starting up your business if you want it to grow and succeed and to avoid using your emergency funds. Be confident in your financial decisions as this will help the business move forward, but know when to seek financial advice if you are uncertain of the potential outcomes that could jeopardize all your hard work.
