The success of your business isn’t just about how well you market your brand, how amazing your product is, or how big of a following you have. Your success also stems from your ability to keep your business financially healthy, and most importantly… knowing how to do that.
The practices of personal finance can easily cross over to the world of corporate finance (a.k.a finance for business). If you want to be ready to take on the financial aspect of running your own business, here are 5 money management tips you can start practicing today!
1. Budget for your business.
The core foundation of personal finance is maintaining a budget, and the same goes for your business. You should be reviewing your budget constantly to ensure it’s always in line with your business goals. A budget is not created to then be hidden away in the many folders on your computer, letting the cobwebs accumulate, and to never be opened again. It’s a good idea to update your budget weekly; however, depending on your business model, you may want to update it more than once. Don’t make any mental notes, if you need to write down an expense, pop it straight into the budget!
When you start out, it will be practical to have one overall budget that would set out how much capital is needed to run your business for the next month, period, year, and so forth. Once your business starts to grow, it may be wise to start making several individual budgets that would generate your totals put into your overall budget. Think, budget for social media, budget for technology, and so forth.
2. Keep personal expenses & business expenses separate.
In order to fully understand the financial matters of your small business it would be beneficial to open up a separate credit card or debit card in which you would use for all business related transactions. Also, you would benefit from opening a savings account solely for your business. When keeping your personal finances separate to your business expenses, you can better track your income and expenses, and properly budget to keep your business in the green.
3. Education is essential.
If you were to start investing your hard earned money into the stock market, you would be continually researching everything you can about how to get the best return on investment. It’s no different for your business. Learn how to read financial statements (the balance sheet, income statement, & statement of cash flows); how tax affects your business (or even how to do your own taxes!); how to re-invest your savings; and how to project future cash flows (you may have to get down and dirty with some numbers). The more you can understand yourself, the better off you will be at managing your business finances.
4. Set realistic, practical goals.
It’s ok to be a dreamer, but setting realistic, practical, and clear goals financially will be essential. Set yourself SMART goals (specific, measurable, attainable, realistic, timely) for your business. This will help guide you and keep you in check along the way as you build your empire. These financial goals can be anything in regard to budgeting, sales, marketing targets and so on.
5. Live within your means.
If you’ve bought the overly expensive car you can’t afford, or you’re paying a ridiculous amount of rent when you know you’d find a cheaper option elsewhere, this is called living above your means. Again, it’s the same for your own business. Be smart about your business operations, and don’t go overboard with spending if you don’t need to, or can’t afford to. For example, if you’re looking at accounting software to purchase, you don’t need to get the most expensive one because everyone raves about it. There are plenty of alternatives so make sure you spend what you can afford. As your business grows, then your purchases can grow.
It’s understandable you may need a loan or investment capital to help get your business off the ground. Be wise with how you negotiate these terms and what your investor proposes in the contract. Make sure you’re across all terms and conditions and don’t go overboard with the amount of capital you’re asking for. At some point in time, you’ll need to pay that back.
When it comes to your business, education is key, and it will pay you to do your research and take the time to ensure everything is in place when you start your business. Not only will these basic money management tips help you set the foundations for a financially healthy business, it will help you maintain good financial fitness in the future.