It takes a big leap of faith to start your own business for the first time. This can be a very daunting step to take, no matter how confident you are in your skills as an entrepreneur. Even savvy business owners face plenty of challenges and can make terrible mistakes along the way, but the chances of failure are a lot bigger when you’re an inexperienced entrepreneur looking to navigate the highly-competitive business world of today.
However, if everyone would focus only on risks and hazards, no one would take chances anymore and there would be no evolution or development in any area of activity. So, as difficult as the beginning might be, you have to find the strength and resources to push through.
One way to ensure a smoother and safer journey within the business environment and increase your chances of success is to arm yourself with the right knowledge and skills. And this brings us to financial literacy, which is a key aspect of successful entrepreneurship. Financial knowledge often makes the difference between thriving and failure in business, so if you want to brush up on your financial skills before you set up shop, here are 7 tips that might help you out.
Separate business and personal finances
Ideally, you should be able to keep your personal life separate from your professional life. You wouldn’t want to take your work home or bring personal issues to the office. That separation should also apply to your finances. When you’re just starting out in the business world, it can be difficult to draw a clear line between these two realms, and some of your personal funds might get mixed with your business funds.
However, one thing you should do from the very beginning is open a bank account for business purposes only. Of course, you could use your personal bank account for business, but this will bring you several disadvantages. Apart from making your business look unprofessional, it makes it difficult to separate transactions when calculating taxes and it can lead to the mixing of funds. Given that your business is a separate entity, opening a different account for it makes the most sense.
Different people have different working styles. While some people thrive in chaotic and cluttered environments, others can’t function unless everything is perfectly tidy and organised. Regardless of how you choose to handle your daily tasks, finances represent one area of your business where you have to stay organised all the time.
Making sure you keep your records neat and tidy can save you a lot of trouble, helping you avoid the frustration and confusion of searching through tons of documents to find the information you need. Tools such as QuickBooks accounting software can be of great help in this respect, allowing you to keep your accounts accurate and organised and manage your finances with ease.
Set clear financial goals
Although every entrepreneur wants to run a profitable business, very few of them start on this journey just to get rich. Chances are financial gain is not the only thing that motivates you to keep going. If you’re like most professionals, you’re probably more focused on bringing your business idea to life and creating something of value.
While these endeavours are admirable, you shouldn’t let your aspirations make you lose sight of your financial goals. You have to dream big and be practical at the same time. Also, try to be as specific as possible when setting financial goals. If your objectives sound something like creating a more diversified revenue base in one year’s time, you might want to redefine them and break them up into smaller, more specific sub-goals that can show you how to get there.
Manage your cash flow like a pro
Do you know how much money is coming in and out of your business? Cash flow is the bloodline, so staying on top of it is key to business success. However, dealing with figures can be a tedious and time-consuming task, especially if you’re not good with numbers. That’s why it’s better to seek professional help or use an accounting platform to help you out.
Experts at QuickBooks advise using accounting software for this, as it can help accountants and businesses keep track of their financial performance. What’s more, in the near future, businesses will be required to use government-approved accounting software to stay compliant with regulations in the field.
Money makes the world go around and keep your business afloat, so if you want to make more money, you have to invest money. As obvious as this may sound, it’s far from being an easy task. The catch here is to know when and where to invest your money.
As a newbie entrepreneur, you might be tempted to use all the money in your bank account to invest in office space, equipment, furniture, and so on, but before you make any major purchase for your business, ask yourself if they make sense for your specific circumstances. Although investments are necessary for business growth, you also have to put some money aside for unexpected situations. Try not to go overboard with expenses and only spend money on things that add value to your business.
Think before you scale
On a similar note, as a financially savvy entrepreneur, you have to approach business growth with caution. You don’t want your business to stagnate, but you don’t want to rush things and bite more than you can chew either.
Timing is extremely important in business, so you have to figure out when’s the right moment to scale your business and if you have the necessary resources to do it. The safest strategy is to start slow and take things one step at a time. That will help you adjust to the changes you make and avoid unnecessary risks.