If you are starting a new business you need to be prepared to thrive and survive, which takes capital and preparation. To help you prepare for and avoid a startup financial disaster keep the following tips in mind.
When you started your business you probably figured out how much money you needed to buy materials, equipment, and pay various overhead expenses. But you will need more.
It is imperative to create an emergency fund to pay for unforeseen expenses. It will act as a cash reserve that you can access quickly. Consider your monthly expenses, unforeseen dips in sales or rises in costs and ensure that you have enough cash on hand for the unexpected.
One of the worst things that can happen in the life of a small business owner is to lose their business and their personal assets. And it happens all too often because they fail to separate finances.
“If you operate a corporation or limited liability company, you can be held personally responsible for company debts if there is no clear distinction between your business and personal expenses; this is known as Piercing the Corporate Veil.” It also saves you time and money in the long run.
Whether you are a CPA or a tree trimmer, or anything in between, it is imperative that you have business insurance; in fact, some industries require it. There are various types of business insurance.
Each option offers different levels of coverage for you, employees, customers, etc. This can also keep your personal assets safe if someone comes after your business. Consult a business law attorney and a small business insurance company to find out what type of insurance is best for your business and how much coverage you need.
Not only is it important to create an emergency fund, but to understand your financial liquidity or “how easy it is to convert assets to cash.”
Meanwhile, invoice management and payables should be closely monitored with a clear system in place. If you do find yourself in a cash crunch, researching options to sell future payments may be an option. This allows businesses to receive lump sum cash in exchange for future payments due to them from financially strong sources. Consider your unique financial position and the risk associated with options including tapping into your SEP IRA, Solo 401(k), credit card cash advances, etc.
As you work to manage your business finances it is important to set realistic financial goals. For first-time entrepreneurs, goals can include: a) increasing financial knowledge, using the right financial management tools, outsourcing key accounting activities to a bookkeeper or CPA, etc. Smart money goals start with understanding the basics.
Of course, just because you set a budget doesn’t mean it is written in stone forever. Regularly re-evaluate your business expenses and see where you might be able to cut costs and negotiate better rates.
With planning, dedication, and an emergency fund you can prepare to weather many financial storms and build your new business into a lasting venture.
This article has been edited and condensed.
Joseph Green is a professional internet marketing analyst at Strategic Capital. He believes in providing the best and suitable financial advice. Joseph has vast experience in various financial sectors and specializes in structured settlements. He keeps writing about helpful and practical financial solutions. Connect with @stratcap on Twitter.
© 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.
We are a diverse group of early adopters, innovators, entrepreneurs, startup enthusiasts, influencers and small business aficionados. Stay connected to YFS Magazine as we share our unique perspectives on startups, small business, and entrepreneurship culture.
Show More