Launching a new business is exciting and scary. We’ve all heard the doom-and-gloom statistics about how many startups fail within their first few years. Numerous factors contribute to the high rate of failure, but poor money management is one of the most common.
To be successful in the short and long term, business operators must make smart financial decisions and be constantly aware of their company’s fiscal situation. Of course, this often falls well outside an entrepreneur’s area of expertise. Simply recognizing this fact is an important step toward prosperity.
The following money tips for startups and entrepreneurs will help guide you along this rewarding journey. Take them to heart to avoid many of the typical financial missteps that too often undermine a startup’s success.
Startup Finance Tips
- Keep your business and personal finances separate, including different bank accounts and credit cards. It makes things much simpler for financial analysis and tax purposes.
- Have separate emergency funds tucked away for both personal and business use.
- Use a professional bookkeeper and accountant. Bootstrapping is often necessary in the startup phase, but these aren’t areas to cut corners or try doing everything yourself.
- Understand where all your money is coming from and going. Even though you have a bookkeeper and accountant, you still need to be on top of your accounts payable, accounts receivable, and cash flow.
- Create detailed monthly and annual budgets to guide all your spending decisions.
- Never stop actively looking for additional sources of income for your business, whether from new customers or clients, upselling, new products or services, or diversified revenue streams.
- Comparison shop for everything that contributes to your overhead—even down to small office supplies—and don’t pay more than you must. Skip unnecessary or excessively expensive purchases for now; fancy perks for employees may be nice for company culture, but let them wait until you can truly afford them.
- Set realistic but motivating weekly, monthly, and annual revenue goals.
- Don’t get too spend-happy. When money starts coming in, it’s tempting to invest it all into upgrades, new hires, etc. Be conservative, though; stability, solvency, and survival are more important than growth. Make sure you can weather the next dip before spending your funds.
- Consider working with an established local credit union. Small and new businesses usually get lower rates, fewer fees, and more flexibility than with a big bank.
- Track how you spend your time. Time is an entrepreneur’s most valuable resource, and it’s a lot harder to make than money. Investments in good time management are often well worthwhile, and inefficient processes used for minor savings are usually a poor choice.
- Remember to pay yourself. If your personal finances are a constant source of stress, it detracts from your focus on launching and growing your startup.