Running a business is a challenge unlike any other. It’s the first time you’ll face a problem, and there’s no one senior to ask for guidance. Even people running their businesses can’t advise you on what to do in your specific situation, so you must be prepared.
Ancient Romans preferred a defeat where they did everything by the book to a victory where they improvised. Rules can be reapplied to give the same result, but an impulse decision works only once, and there’s no guarantee that it will work ever again. Nowhere is this abiding by rules as important as when it comes to finances.
Just as a young adult learns their way in the world of finances, you, as a young entrepreneur, need to do the same. Here are the top five financial tips to help you out.
They never tell you that most enterprises take between six months and a year to become profitable. In the meantime, they’re either not making money or losing money. You need enough funds to bridge this period.
The solution to this problem lies in how you get the money. Roughly 78% of small businesses and startups are funded by private means. You’re either using the money you have, the money you’ve got via a personal loan, or the capital you’ve attained by selling an asset. You could also get a partner or crowdfund your way up. The biggest advantage of the latter is that it gives you more wiggle room for the future. When finding a partner, you lose some equity but gain so much.
While being ambitious early on sounds like a good thing, it’s a decision that can seriously backfire. However, this doesn’t mean you must choose between being ambitious and starting smaller. What if you were to make a roadmap for your enterprise growth? So, instead of starting at a certain (unattainable size), why don’t you scale up there?
Becoming self-sustainable and being profitable is the priority for any new enterprise. This is your first objective, and it’s absurd to talk about anything else before this point.
Having money on paper and having actual cash that you can use to cover day-to-day expenses are two different things. To get some flexibility and resilience, you always need to have some cash on your hands. Now, the concept of cash-in cash-out is called cash flow, and improving it is one of your primary objectives.
When you have cash, you have options, but if you don’t improve the flow, you’ll just hoard your cash and always fail to utilize it properly.
The next thing you should do is find an accounting software for your company. There are many user friendly business accounting programs, and they’ll help you run your business finances with more efficiency. Here’s how:
Accounting software can automate some of the most basic accounting tasks and free up your accountants or bookkeepers to focus on more important things. such as handling payments on account for self-assessment. It also reduces the likelihood of human error and gives you relevant insights. What more can you ask for?
You must pay some monthly expenses, which are often predictable (account payables). Still, just because you always make the payment on the same date, this doesn’t mean that you can’t forget or miss the payment. The simplest way to avoid this is with AP automation.
The bottom line is that if you can minimize human error and delegate one arduous task to a platform, there’s no reason to avoid doing so.
At one point, you’ll realize there’s not enough money and start pointing fingers. Since you’re new in this game, you’ll likely point them in the wrong direction. What do we mean by that? When it comes to cutting costs, new entrepreneurs are often reckless and merciless, making them make cuts that ruin the quality of the enterprise.
For instance, by firing some of your employees, you’ll save money on the payroll but completely ruin your capacity. You’ll save money by omitting bonuses but miss the opportunity to inspire your employees to work harder. Skimping on resources and buying from a cheaper (untrustworthy) supplier can cause many problems down the line. Don’t let this happen.
The best thing is that there are many ways to cut costs without sacrificing the quality of your work. For instance, you could try:
In other words, you have the option to do things smarter. Most of these changes won’t have negative outcomes; some might even boost your effectiveness. The key thing to remember is that each decision you make changes your business model. You need to try and ensure that most of these changes are for the better. Cost efficiency is more important than cost or cost reduction.
Your profitability is the most important KPI (beyond a shadow of a doubt). This means that learning to be better with your money, make more money, and properly utilize your resources could make all the difference in the world. Just make sure to take this slowly and examine all your options. Like our last point, some methods might hurt you more than they’ll benefit you.
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