As a responsible entrepreneur, you should already know that starting a business comes at a high cost. On top of being physically and mentally prepared, you also must ensure you have adequate funds. You need to make sure that your business will survive financially.
Let’s assume that you’ve done all your research and already know how to have a successful business. You’ve already figured out the kind of personality to adopt, the skills required to run a company, and have talked to other new business owners for inspiration. Let’s now proceed to some pieces of financial advice that you will find useful for your journey in the business world.
Hire a Financial Expert
There are other crucial things to prepare than just tons of money for your capital and operational costs. Take taxes, for example. Tax planning is essential, whether you’re starting a small mulch business or a unique gourmet popcorn shop. Tax is a complex subject best left to tax experts or anyone who has more knowledge.
Hiring an experienced accountant can help you avoid tax errors in your filing of returns. An accountant can prepare your annual tax returns and provide appropriate business advice. They can also help you with bookkeeping, business plan support, management of assets, business property valuation, and how to minimize business expenses.
Separate Your Money
Whatever business you have, make sure to open a dedicated bank account for it. Separating your business and personal bank accounts makes tax time way easier. You can quickly track what payments are business-related or personal, allowing you to monitor your finances better. At the same time, this eliminates the risk of business liabilities in your personal account.
Apart from opening two bank accounts for personal and business funds, use a system to manage your finances or monitor your income. Financial management platforms are highly customizable, and you can even find free ones.
Build an Emergency Fund
Thousands of businesses have faced financial troubles due to cash flow issues. What better way to help you prepare for that than having an emergency fund? A smart move for this is to follow the cycle where demand for your business or products is higher. For instance, if you’re a landscaping company, your products can be a hit during summer. On the other hand, a gift and boutique shop can sell more during the holidays.
Save a stockpile of cash during your business’s peak seasons to avoid serious cash flow problems in the future. It’s recommended to save at least three to six months’ worth of expenses.
Prepare Money for Taxes
Starting your own business means that you’ll be the one accountable for paying your own taxes. Required taxes for businesses come in various forms. You’ll generally need to pay for self-employment tax, state income tax, social security tax, Medicare taxes, federal income tax, and tons more.
Don’t forget to classify your company to avoid underpaying or overpaying taxes properly. Check whether your business is classified as Sole Proprietor, Single Member LLC, S Corporation, C Corporation, Limited Liability Company, or Limited Liability Partnership.
Manage Your Cash Flow
Having a solid cash management plan is the key to ensuring your company remains operational, regardless of whether sales are stable or fluctuating. One way to do this is to consider liquidity. It refers to how fast you can get money whenever you need it. Some liquid assets easily convertible to cash include your checking and savings accounts. You can use them to pay for debt obligations or day-to-day expenses.
Another way to maintain good cash flow is to create cash reserves by depositing excess money in a money market or bank account when your sales are considerably high. Besides that, learn to control spending by focusing only on your business’s essentials, such as utilities, workforce, and equipment.
As for your cash flow forecast, it’s better to get a reliable business accounting program to ensure accurate financial forecasting information. Consider that you are already welcoming the risk of bankruptcy or excess debt for your company with poor cash management. Such problems are often greater for small businesses, so be cash flow positive.
Starting a new business can be financially exhausting. But following these recommendations will help you prepare financially and assess your personal situation. If you run your business right, you will achieve that level of entrepreneurship you’ve always dreamed of and operate a profitable and sustainable company.