Managing money throughout the month as you face your business expenses can be difficult. In fact, being a startup can be tough given that expenses are ever higher in this day, and competition proves to be more stringent as the day goes by. It can even be more difficult if you choose to have a partner with you in your enterprise. It does not matter whether this person is a relative, friend, or a complete stranger who has the qualities that you are looking for in a co-founder. Managing an enterprise with another person may be rewarding but tough at the same time.
If you have been having problems with how you deal with your business finances lately, don’t worry. Here are some essential tips to help you manage your finances, whether you are a sole entrepreneur or you are doing business with a partner:
1. Do make a budget before you start spending
Nobody probably taught you about this in school, but take it from the experience of others when they say that a budget is a must before you go out spending your income. You don’t need a degree in business management or accountancy to start making your budget. Do the simple math and choose what you need to spend on and what you want to spend on. Since you are a startup, you will find that it is difficult to make critical budgetary decisions since you are working with a limited amount.
Preparing a budget needs to be done together with your partners if you have any, so you would know what the important things are to all of you. Make sure to take into account how much monthly income you have so you can budget accordingly. From there, make a general plan that you will follow before you list the items you’ll be spending on.
2. Do list where you spend your money
Keep track of where your money goes after you’ve done your spending. Sometimes you’ll see yourself spending on items outside the budget you’ve planned together. Whether it was something you forgot to include in the budget or something you didn’t expect to be spending on, make sure to write them down to know how much money you have left in your budget. And if you are doing business with a partner, don’t forget that every decision must be done together. You cannot merely decide on your own since your partner’s money is also at stake. If you are having trouble in handling your finances, then you might want to seek the help of a professional and hire an outsourced CFO to get the job done.
If you tend to spend beyond your budget, consider identifying the unnecessary spending you’re making to be able to cut down on costs and save more money. As your business grows, you will have more expense to do so you need to do it wisely. It is, then, essential to have a financial manager among your partners, so you know exactly how to budget your accounts.
3. Do prioritize what you will spend for
As long as your money isn’t infinite, you will need to prioritize what you will spend on and forego what isn’t immediately necessary. Make a list of your needs first, before you decide to spend on the next spending stages of your enterprise. Rent, utilities, salaries, and other bills are expenses in the budget that you must always account for. Other than that, whatever is left in your budget can be saved to secure your enterprise’s future.
Talk about what urgently needs to be purchased, and then you can go with the decision-making from there. It must be a collaborative decision. If you want to make a business loan, make sure that all your partners agree with it.
4. Don’t forget to allocate part of your budget for capital investment
When doing tip number 1, did you forget to include savings as part of the budget? If so, then you’re doing it wrong. Savings are essential for a business as it serves as your emergency fund during times of trouble. It also serves as your backup capital when you need to venture into larger things in the future. Don’t go out spending your whole budget all in one go every time. Having an emergency fund can help you survive unexpected expenses such as higher taxes and employment needs.
Also, not having a budget for savings and capital means that you won’t be able to plan and invest in important things. Learn how to prioritize, so it is vital to structure your business plan realistically within a five-to-10-year period.
5. Don’t make additional loans
Some say that loans are needed when you are starting out with your enterprise, but this is not indeed the case for everyone. If you can foot the bill for now, why would you spend your first few years in the business paying for your loans? The interest adds up, and you will only put your growth on the back seat if you do this. If you have partners, talk with them to make sure that they are on the same page as you. Bank interests will seriously kill your budget and will minimize your potential in growing your enterprise.
Always focus on your needs first and work around your existing budget. Making unnecessary loans is similar to impulsive buying but with just a few extra costs due to the interest rate being part of your expenses. If you ever decide to get a loan, make sure you’re spending it on something that you are confident is worth the risk.
6. Don’t spend above your means
No matter how many times this tip comes up, people can’t remember to follow the basic rule of spending only on what you can afford with your budget. If your business is running great, it may feel okay to spend as much as you can. However, doing so will seriously derail your enterprise and may even lead to its inevitable bankruptcy.
These tips may sound simple, but you will be surprised at the number of startup entrepreneurs who fail to follow them. Don’t fall into loan or investment traps that will make your business go downhill. Be wise with your spending, and for sure, you will see significant growth in your enterprise.