Not everyone is designed to work a typical 9-5. And this desire to break out of being under a corporation usually pushes people to start a business and become their own boss.
Beginner entrepreneurs need to be smart and strategic in order to survive in the real world. Only 56% of small businesses make it to 5-years, so new business owners must do what they can in order to secure the longevity of their business.
One major reason why small businesses fail is finance mismanagement. While it’s true that managing a business’s finances can be a difficult task, developing smart money habits can prep beginner entrepreneurs for times when they need to be tight on cash. If you’re just starting out with your business, we’ve listed down a few habits to help you stay on top of your business funds.
Separate Personal and Business Finances
Most new businesses start out as a sole proprietorship — the default business structure. Many businesses have this structure as there aren’t any documents to fill out and submit to the state. However, not evaluating your business structure and switching from a sole proprietorship can get you in hot water as you accept full personal liability for any debt or legal responsibility filed against the company. This, then, puts your personal finances at high risk.
One way to ensure a separation between your personal and business finances is to set up an LLC for your business. This allows your business to be formally established as a separate legal entity, which can help you keep your personal assets secure. This also paves the way for your business to have its own bank account, credit card, and receipts. By creating a boundary between your personal and business finances, you can sleep soundly knowing that your personal finances are safe in the event your business goes under.
Stick to a Budget
Everybody knows the importance of having a budget. Having a budget lets you set an expectation for optimal business results. Your budget should detail how much cash your business is supposed to spend on expenses and how much it needs to be receiving to stay profitable. To force you and your staff to stick to your budget, be sure to set automatic payments for bills, savings, and other monthly expenses. Furthermore, reviewing how much you followed your budget at the end of the month will make you better at budgeting — and this can help you make better decisions for your business in the future.
Always Check Your Finances
Any smart business owner knows that staying on top of their finances means regularly reviewing their books. By checking your income and expenses on a seasonal or monthly basis, you get to understand your customer’s spending patterns and see how your business is growing. To have a better view of your finances, you should try to be organized by using accounting software which can help you record your expenses, revenue, taxes, and payroll.
Build Your Business’ Credit
Your business also has its own credit score — just like any individual. Building a good credit score is a pivotal task in money management as it allows you to apply for loans, buy properties, and open accounts for your business. With a low credit score, you’ll receive bad terms when taking out a loan, and this can put your business in jeopardy in the long-term.
To maintain a good credit score, you should pay your bills in full and on time. Also, try to fulfill your financial obligations as soon as you can. This means repaying your vendors and eliminating outstanding balances before your due date. Furthermore, you should also make a habit of periodically checking your credit to see where your business stands financially and how to adjust accordingly. By building your business’ credit, you can make sure that your business qualifies for better loan terms for when it’s time for you to scale up.