Regardless of where you’re working—whether it’s from the best coworking space in Melbourne’s CBD or a cafe in Mumbai—launching a new business venture is thrilling but risky. A depressing amount of small businesses fail within the first year, often due to money mishaps like cash flow problems or inadequate financing.
While passion might fuel great ideas, proper financial management ensures those ideas survive and thrive. So, rather than learning tough lessons down the road, equip your small business for financial success from day one with these handy tips:
Write up a detailed business budget
Instead of scrambling to fund operations week-to-week, create a detailed business budget that realistically forecasts what you’re likely to spend and what you’re likely to make in the weeks and months ahead.
Include fixed costs such as inventory, equipment, software, and payroll alongside variable costs such as marketing campaigns and projected growth targets. When it comes to earnings, err on the conservative side for estimating product or service sales, membership fees, shipping charges, and other sources of potential revenue.
A detailed business budget will set a strong financial foundation, guiding you toward smart spending decisions and avoiding oversights that drain profits.
Open a “profit first” account
Before you allocate money toward operating costs and other expenses, put some aside for profit. That, in a nutshell, is the “profit first” philosophy many entrepreneurs follow to ensure they get paid rather than doing a bunch of work without earning anything. Instead of profits coming after you subtract expenses from sales, profits come right after sales, and then you pay expenses.
It starts by opening a “profit first” account. Then, transfer a predetermined percentage of each dollar earned into that account. Make those transfers automatically tethered to each sale, and watch as your earnings compound over time. This will strengthen the foundation of your business success.
Manage your cash flow meticulously
In addition to managing profits, keep a close eye on incoming cash flows. This typically means timing client payments to ensure you can cover immediate financial obligations.
Careful management of this cash flow requires prompt invoicing of clients upon completion of projects, following up on any late and missing payments, securing deposits for any large orders, and avoiding overextending your current capital. The ultimate goal is to eliminate scrambling for funds to cover daily expenses.
Closely control your inventory
One of the fastest ways for small business owners to run up costs and tie up working capital is to accumulate excess inventory. This can lead to spending a lot on storage fees to house products that will be soon obsolete.
Avoiding this frustrating state of affairs requires closely tracking your inventory. Know what’s available and what’s selling, and set realistic projections for future growth. Reign in the temptation to overstock too far in advance, and ensure you have an affordable storage solution for any products you do need to stow away.
Build an advisory team
As a solopreneur, the learning curve for successful money management is extremely steep. Mastering complex accounting, financing, and forecasting is not something you do overnight. Nor is it something you necessarily need to do alone. Instead, build an expert advisory team. This team will help you effectively manage risks and offer specialized guidance that allows your business to thrive.
With a bit of dedication, passion, and grit, any small business can take off. However, once off the ground, sustaining that business requires careful avoidance of common money mishaps. By constructing a detailed budget, funding a profit-first account, managing cash flow, controlling inventory, and using professional advisors, you can ensure your business flies high.