Starting a new business is both thrilling and overwhelming, isn’t it? Whether you’re excited about your product or service or ready to dive into building your brand, there’s one thing you can’t ignore: finances.
1. Keep Personal and Business Finances Separate
This might seem like an obvious point, but it’s one that many new business owners overlook in the early stages. You might think it’s easier to dip into your personal savings to cover an unexpected business expense or to use the same bank account for both personal and business transactions. Trust me, that’s a mistake.
Why? Mixing personal and business finances can become a nightmare when it comes time to file taxes or track business performance. It can also cause legal issues down the line if your business gets into trouble. To make your life easier and your finances more manageable, open a separate business bank account from day one.
2. Choose a Bank With Care
Not all banks are created equal when it comes to business accounts. While your personal bank may work well for you, its business services might not be the best fit for your new venture. So, how do you choose the right bank?
First, look at what different banks offer in terms of fees, transaction limits, and support for small businesses. Some banks offer perks like free transactions up to a certain limit or business loans with lower interest rates. Others might provide financial advisors or tools that can help you better manage your cash flow. Take your time, ask questions, and compare your options before making a decision. The right bank can be a partner in your business’s growth, not just a place to park your money. We’d recommend checking out Farmers Bank to start with, as they have an exceptional reputation and offer a wide range of services.
3. Stay On Top of Your Cash Flow
Cash flow is the lifeblood of any business. You’ve probably heard that before, but it can’t be emphasized enough. Poor cash flow management is one of the top reasons small businesses fail. But how do you stay on top of it?
Start by forecasting. Understand when your business will have its busiest months and when things might slow down. This way, you can prepare for periods when cash might be tight. Always keep an eye on how quickly you’re getting paid by clients or customers and ensure you’re not spending money faster than you’re earning it. Using accounting software can help automate this process, giving you real-time data on your business’s financial health.
4. Pay Yourself First
When you’re the owner of a new business, it’s tempting to put every penny back into the company. After all, you’re trying to grow, right? While reinvesting in your business is important, paying yourself is too.
If you neglect to pay yourself, you risk running out of personal funds, which can add unnecessary stress. Set a salary or consistent percentage of profits to take for yourself. This way, you can maintain personal financial stability while still helping your business flourish. Remember, you’re part of your business’s value – don’t shortchange yourself.
5. Know Your Tax Obligations
Taxes can feel like a burden, but they’re something every business must deal with. It’s crucial to know what your tax obligations are from the start. You’ll need to account for things like federal, state, and local taxes, as well as employment taxes if you have staff. Not planning for these expenses can lead to costly penalties later on.
6. Set Aside Money for Emergencies
Even with the best plans in place, unexpected expenses will pop up. Whether it’s equipment failure, a sudden drop in sales, or a new competitor entering the market, these surprises can put a strain on your finances if you’re not prepared.
That’s why having an emergency fund is essential. A good rule of thumb is to save enough to cover at least three to six months of operating expenses. It might take some time to build up this cushion, but it can be a lifesaver when the unexpected happens.
7. Don’t Be Afraid to Seek Professional Help
Running a business means wearing many hats, but you don’t have to do everything yourself – especially when it comes to finances. If you’re not confident in your accounting skills or if managing your books is taking too much time away from other important tasks, consider hiring a professional.
Ready to Take Control of Your Finances?
Managing the financial side of your business might not be the most glamorous part of entrepreneurship, but it’s one of the most important. By taking steps like separating your finances, choosing the right bank, and staying on top of cash flow, you’ll set yourself up for success. And remember, it’s okay to ask for help when you need it. Being proactive with your finances today will make a world of difference in the future.