You cannot
neglect the financial health of your startup business, especially during its
first few years. The long-term success of your startup depends on how well you
can manage finances. It would help if you made good financial decisions
now so that you can be prepared when the eventual rough patches arise.
Planning well now will also help you take advantage of profitable times and use
that money to grow your business.
Get A Business Bank Account
Getting a business bank account is a key part of getting your startup's finances organized. It can be a savings account, checking account, or cash management account.
There are several benefits to having a separate account for your business. For example, it gets you ready for tax season. If you have your personal expenses and your business expenses separate, it is easier to file taxes. If you don’t do this, your personal and business expenses are going to be so intertwined that it may be difficult to separate them. This could lead to losing out on deductions.
Depending on your business's legal structure, having a separate bank account for your business can offer some legal protection. For example, if your business is sued, having a business bank account shows that your business is a separate entity apart from you. This makes it easier for you to protect your assets.
Finally,
having a business bank account gives your business a professional look. It
allows clients and customers to make payments to a business as opposed to
paying you personally. This gives your entire venture the look and feel of
professionalism.
Understand
What You Know and What You Don’t Know
You may be an expert in your field of work. However, when it comes to finances, you may be illiterate. One of the biggest mistakes you can make during those early months and years of business is assuming that you know more than you do.
Get the tools and educational resources needed to understand how to manage business finances. It takes time, but it will save you money and stress in the long run. It is okay to say that you don’t understand something and ask for help.
Even if your startup has hired an accountant or is outsourcing its accounting services, you need to have a conversational understanding of the accounting principles that impact your business. If not, you could be bleeding money or have employees stealing money from you without realizing it.
For example, if your business uses instant credit card processing, you should understand how the credit card processing system works. For every credit card transaction, three entities are involved. These include the credit card association, the payment processor, and the customer's issuing bank.
The
process of verifying customer information and authorizing or declining a
transaction is relatively fast. However, it is complex. If it is not handled
properly, it could mean that your organization is paying more money for credit
card services than it should. However, if you take the time to understand this
aspect of your business, you can have more control over how your money is
spent.
Manage
Your Cash Flow
Cash flow refers to the money that goes in and out of your business. If you make more money than you spend, your cash flow is positive. Unfortunately, more than 60 percent of small businesses struggle with cash flow. You must pay close attention to this aspect of your business.
Take
control of your cash flow by making sure that you send invoices immediately.
Keep track of your debts and savings. Don’t wait until you are in a dire
situation to borrow money. Instead, borrow money before you need it. When
possible, make tweaks in your inventory to improve cost efficiency. Also,
evaluate business operations frequently to see where you can cut expenses.
Conclusion
Your time
and money is valuable. The decisions that you make during the opening months
and years of your startup will impact your business's growth and determine
whether it fails or succeeds. Don’t let a lack of understanding prevent you
from managing your finances. Instead, dedicate time and energy to learning
about and maintaining the financial health of your business.
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