Financial Tips for Entrepreneurs
For entrepreneurs and startups, starting a business can be one of the hardest, riskiest, but most exhilarating and rewarding of experiences. You will have to deal with an endless stream of complex problems. One of the hardest problems: managing your finances.
Here we have collected six tips for managing your business and personal finances as an entrepreneur:
Don’t rely on credit card debt
Credit card debt can harm both your business and personal financial goals. In the growing period of a business, the cost of credit plays a crucial role. Find a way to set your interest rate at the lowest rate possible to reduce costs and obtain profitability sooner.
Keep your fixed expenses low
One of the pitfalls of early start ups is taking on too many expenses too early. While you want to project a certain image, don’t stretch the company too far with things such as a fancy downtown office until you have established yourself and know what you can comfortably afford. Patience is key, if you need office space look for low priced month-to-month options (shameless VentureClub plug here, we have tons of flexible options and would love to work with you to find the perfect solution for your start up).
Be realistic about your burn rate
One way to quickly run out of money is to not have a proper understanding of your burn rate. Whatever you think it is going to be, bump it up by 20%. This gives you the flexibility to deal with any unexpected expenses and allows you some breathing room if you end up spending more than expected. Keep an eye on your monthly expenses so you can identify issues before they require a drastic decision that has a major effect on your organization.
Maintain a border between person and business expenses
Personal and business bank accounts should be kept separate. This will give you a more straightforward accounting at the end of the year for tax purposes. It will also help to eliminate situations where your business cash flow is affected by personal expenses, or your personal expenses are affected by a large business purchase. This will help create more order and less stress.
Negotiate with vendors
It is important to negotiate with vendors before signing a contract to make sure you are getting the best deal possible. A successful negotiator will know going into the negotiation what they hope to achieve.
Examine terms like late payment penalties and grace periods. Being given an extra 30 days to pay can save you more than a discount off the top.
Set up an emergency fund
An unexpected bill, an emergency, or a seasonal dip in business could put you in a distressed financial situation if you don’t have any funds set aside to deal with it. This can apply to both your personal expenses and your business.
For your personal expenses try to set aside 3 months worth of your personal expenses. As an entrepreneur if your personal expenses put you at risk it means your business is at risk too. For your business expenses, develop a plan to infuse your business with cash during down months to create a steady flow of income. This means setting aside income from your high performing months to cover expenses during low performing months.