It’s not unusual for a person to leave the protected incubation of college and enter real life; only to be unserendipitously smacked in the face with reality (i.e., bills, budgets, and bank accounts). They don’t always teach that stuff in school and they don’t necessarily teach it to entrepreneurs, either.
So, eager to present brilliant ideas to the world, budding entrepreneurs leap into action: 80-hour workweeks, foosball, and hackathons. Oh! And they can take their dogs to work, too.
Then, after a year of fun, it all falls apart.
But why do entrepreneurial dreams often fall apart? The most notable reason is money management. Often an entrepreneur has a great idea and passion, but knows little about accounting and budgeting. Yet that’s the whole point. We live in an economic system of capital. Learning how to count it is part of being a successful entrepreneur.
Personal Finance Must-Dos
Before pursuing your startup dream, take the time to dig into your personal finances and set realistic financial expectations for your budding business. Consider these six tips:
- Get your house in order. Record your personal spending, including taxes, to understand the income you need to live.
- Create a budget. Include the cost of every aspect of doing business, including a large margin for contingency. Startups have all kinds of unpredictable expenses.
- Determine first-year capital requirements. You can raise this from personal savings, investors, or crowdfunding. Potential investors will want to see your budgeting homework. Without the rigors of a sound financial plan, investors will not give your idea any kind of serious consideration.
- Get to know a banker. Take the cash you’ve raised to a bank, plunk it down, and start building a relationship with the banker. I prefer local independent banks because they’re entrepreneurial, too. Help the president of the local branch get to know you and your business.
- Put accounting systems in place. If you know accounting, build your own QuickBooks system. If you don’t, hire an accountant. Trust me, it’s worth the investment.
- Create a test. Determine a simple blood test for your business — something critically important and easy to measure that indicates the overall health of your business. In my firm, we calculate the revenues generated per every case served. Share this with your banker.
Help Your Business Grow Up
As an entrepreneur, you will be like an octopus trying to do eight things at once — at a furious pace. And as hard as it is to start a small business, it’s actually harder to stay in business.
Eventually, a growing business will need additional people, requiring payroll systems. It will also face regulatory issues, such as taxes and fees. As growing sales increase operational costs across the board, you will get lost if you don’t meticulously track the numbers.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.