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Understanding The Financial Needs Of Your Business

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understanding the financial needs of your business

Going into business for yourself can be one of the most rewarding and freeing endeavors a person can embark on. At the same time, owning a business isn’t for the faint of heart or someone who doesn’t like doing their due diligence. One aspect of entrepreneurship this is most apparent is in setting up your financial arrangement in such a way that fees are minimized, but you still have access to all of the services you need for things to run smoothly. If you don’t take the time to understand the resources available to you, you risk leaving lots of money on the table by not streamlining your business, not to mention the risk of extra money owed in taxes due to poor bookkeeping.

Here are a few things to keep in mind when organizing the cash flow of your business:

Have the right accounts.

It’s hard to accept payments when there isn’t anywhere for the money to go, which means you’ll need an account at a bank or similar financial institution where you can send all of your payments. Depending on your industry of choice and what types of payments you allow, you’ll have to pick a particular type of account. Those dealing exclusively with in person point of sale type of transactions will do just fine with a traditional merchant account, while those who deal with credit card payments in certain industries may require one or more high risk merchant accounts. It’s imperative that you be truthful with the nature of your business to your bank, so they can accept the risks associated with dealing with you and also offer fees or services that best reflect your needs.

Understand your safety net.

Maintaining a business isn’t always a walk in the park, let alone ensuring its continued growth. The financial safety net of your business should be set up well ahead of time, so you aren’t stuck running around like a chicken with its head cut off should any unforeseen expenses arrive. Secure a line of credit that will help you weather any potential storm, or look at loans available to you that have flexible repayment plans. Having an adequate safety net in place is the difference between having a bad month and your business folding entirely.

Establish a system for record-keeping.

Your ability to handle your financials is only as strong as your ability to keep track of them. Previously, a dedicated accountant was just about the only way to keep all of your expenses and revenue neatly organized. But then, with the advent of highly sophisticated software and equipment, this is becoming less and less of a necessity. Anything that has a dollar amount associated with it, real or imagined, should be noted somewhere, and there should also be a system for keeping track of cash flow in real time. This way, you can accurately predict trends and know what you can and can’t pull off at any given moment in time.

Conclusion

Far too often, a small business will kneecap themselves right off the bat by not thinking ahead when it comes to managing their finances. Everything, from where the money is expected to go to how income reporting will be handled, should be thought of well in advance. These are things that can easily be dismissed as simple and best reserved for a later date. However, just a little bit of initiative can lead to the discovery of novel ways to handle cash flow that ensures the continued operation of any business. As simple as they might seem, many financial questions absolutely need to be answered.

For more on small businesses, read these excellent articles

Starting A Business: Read This Guide

Starting A Business: Get Insurance

Starting A Business: When Should You Hire Help

 

Image source: Pexels.com.

Starting a Business? Read This Guide!

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One of the best ways to break out of the daily grind, and do something that you really enjoy, is to start a business.  You’ll likely work twice as hard, but because it’s something that you love, you’ll enjoy every minute of it.  When my wife quit her job, she could have used a lot of the advice that is contained in the guide I’m about to share with you.  There were lots of questions about the structure and methods that are necessary to starting a small business.  Luckily, if you’re starting a new business, you can read the guide and cut through some of the learning process.

The guide I’m talking about is one that has been put together by my friend, Eric, from Personal Profitability.  It’s free.  All you have to do is have an email and sign up for his newsletter.  He’s a stand-up guy, so your email is safe with him, and all you’ll get is some really great information about starting a business and personal finance.

So, go over and sign up for the newsletter and get your copy of the Starting a Small Business guide.

The guide is 16 pages long, and covers everything from developing your idea into a business to increasing revenue and income, to the proper ways to exit a company you’ve started if that’s what you want to do.  It’s not all-inclusive (that would take a couple hundred pages), but it is a great start on your way to starting a small business.

Starting a Business: Can You Afford the Risk?

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Freedom! Be your own boss! There are plenty of people out there that will tell you that starting your own business is the only way to go. You can set your own hours, and do what you are passionate about. And, sometimes those things happen.

Eventually, you might be able to set your own hours.  Eventually, you’ll be able to make gobs of money doing what you are passionate about.  Eventually.  Until then, you’ll work long hours and probably not make much money doing it.

As with anything, starting a business can be a very risky proposition.  If you decide to do it full time, you’ll have to leave your job.  Doing it part time is a valid response to that, but then you’ll be working even longer hours than you already do.  And, sometimes, your passion just isn’t profitable.

But, I’m not here to discourage you from trying.  In fact, I’d like to do the opposite.  But, if you’re going to start your own business, do it responsibly.  Know ahead of time that you will likely be working long hours and making less money than you have planned for.  And know ahead of time that a very large portion of new businesses (about 60%) fail within the first 5 years.  I’d be willing to bet, however, that a very large portion of those failed businesses failed because the business owner didn’t do their research and didn’t know what they were getting themselves into.

But you will.

Can you afford the risk of starting a business?  Let’s ask ourselves what we will need financially to devote ourselves to our new business.  We’ll need to have a way to pay ourselves.  You cannot count on the business to make enough revenue to pay yourself with.  You’ll have to have a way to pay for start-up costs.  It’s actually pretty expensive to start a business.

If you’re still in the planning phases, visit your local branch of the SBA, or find a local business incubator, and sit down with someone to discuss your business plan and the costs that will be associated with it.  Those experts do this all the time, so they’ll have a much better understanding of what it will cost you to get running.

Once you have a firm idea of what it’s going to cost you, you’ve got to start saving up.  Plan on saving at least a few months of salary and personal expenses, but I would shoot for at least 6-12 months.  And if you can, start saving any extra so that you can put that towards business costs as they come up.  Again, the business isn’t likely to pay for itself right away.

A solid savings plan will not only help you get your business started properly, it can also do a great deal towards keeping your business operating if necessary.  And having an extra cushion to pay your own expenses will save your sanity while you expend all your energy into your business.