You need more than a good idea, commitment, and hard work to become a successful entrepreneur. To really reach your full potential, you also need to know how to manage your finances. Many new businesses fail within the first year through a lack of cash flow. Make sure it doesn’t happen to you by following our tips.
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Understand Your Business Costs
Understanding your costs is vital to ensure the survival and growth of your business, regardless of what industry you’re operating in. While making a profit is the ultimate goal, you’ll need to know how you will achieve this. Making sales is not enough to generate a profit. You need to consider the expenses involved with operational procedures too. These costs can include anything from materials, production expenses, and staff wages, to legal, marketing, insurance, and bank fees.
Create a Budget and Stick to It
Without a budget, you’ll have no idea whether you are on track to make a profit. A budget will help you to create visibility and organization. Simply creating a budget is not enough. You have to be meticulous when it comes to sticking to it. Keep a close eye on your budget so that you can see whether there are any discrepancies. This will give you chance to decide whether you need to modify your expenses or just be more careful with how you spend your money.
Also Read: 7 Things Every Entrepreneur Should Outsource
Consider Selling Your Term Insurance Policy
If you need an injection to help with cash flow or to purchase an essential asset, choosing to sell a term life insurance policy can be a sound financial decision. By its very nature, a term policy expires after a fixed number of years. Rather than simply let it lapse when the term is up, you can opt for a life settlement with a third party where you’ll receive more than the surrender value of the policy but less than the net death benefit. You can use this money to fund your business or perhaps for living expenses until you turn a profit. If you require life insurance in the future, you can take out a new policy.
Be Thorough with Recordkeeping
Updating your financial records can be boring but it’s the only way to stay on top of your finances. The trick is to be organized so try and come up with a system that works for you. Keep all your information in one place with financial software or, if your finances are relatively straightforward in terms of income and expenses, a spreadsheet might be sufficient. It’s much easier to update it regularly than to have to input a year’s worth of information when your taxes are due.
Build Up Your Credit Score
Many new businesses fail through a lack of funds. Whether that’s due to insufficient funding or delayed payments, it can severely affect your ability to operate. A good credit score can prove invaluable if you need to borrow money. It will help you secure initial credit and you’re much more likely to get an extension to your credit and more favorable terms and conditions. To improve your credit score, use your credit facility regularly and be sure to pay it off on time, preferably in full if you are able.