The hardest part about starting your own business is knowing where to start. You can have the idea, drive and people skills to go far, but your immediate and future success will depend on how well you manage your businesses’ finances.
Here are seven tips to help you hit the ground running and keep your business in the black.
1. Save as much as you can.
Too many people go into business exclusively using money that’s been loaned either personally or professionally. You need to save up as much of your own capital as possible before you start your own business. It could take a year or two for you to turn a profit and in the interim, you need to ensure you can take care of yourself and maintain the trust of your creditors.
2. Think small.
You’re an entrepreneur, so shouldn’t your banker be one, too? Community banks are the lifeblood of small business in America. The systemically significant, “too big to fail” banks aren’t really in the banking business. Take Chase or Bank of America, for example. Only 20 to 30 percent of their assets are in loans and much of that is to Fortune 500 companies. In comparison, Florida community bankers increased their small business lending by $433.6 million dollars last year according to the U.S Treasury. Additionally, community banks often offer extra services and counseling to clients that go beyond just banking.
3. Slow and steady wins the race.
Try not to get caught up in the excitement of starting your own business and subsequently, over-invest. In the beginning, you’re going to rely on cash reserves, credit cards, and savings in order to keep your business from falling too far into the red. Don’t lease office space you don’t need or overstock with inventory you can’t afford. Remember, Steve Jobs started Apple in his parent’s garage. Give your business time to grow and take shape organically.
4. Know where to splurge.
I would prefer to save money where I can, but in some cases, I spend a little extra to protect myself and my company. When it comes to your business, you should spend the extra money on:
- Making it official. You need to set up your business as a legally licensed corporation. Operating as a sole proprietor costs no money because you don’t have to create corporate documents and tax returns, but it could cost you in the long run! If your company is sued or things go south, then your personal assets and credit rating will be at risk. Put up the cash and become an LLC. You can thank me later.
- Talking to an expert. Hiring an accountant or tax advisor can help you save a lot of money. One of the most common mistakes people make on their tax returns is actually paying too much tax! An accountant will help you find more deductions and keep you penalty-free.
5. Keep it separate.
Make sure your personal and professional finances are separate. Set up a banking account and credit card in the company’s name and use that to pay for all your business-related expenses. This is the easiest way to keep track of your company’s expenditures and manage bills.
6. Buy that filing cabinet.
Keeping an accurate record of all of your transactions is crucial. Start and implement an organizational system before all the paperwork of your debits and credits pile up on your desk, or worse, disappear.
7. Silence is golden.
You’re going to need the help of investors to help you grow and run your company, but that doesn’t mean you need to give over all the power. Find someone who’s willing to invest in your company but be a “silent” partner. Silent partners get a share of your future profits, but don’t get a voice in the decision making, leaving you to call all the shots.
As an experienced entrepreneur, I know first-hand the reward that comes with successfully growing and starting a business. As a banker, I also realize the importance of keeping on top of your small business finances, and the tips above will help your small business see success far into the future.