There’s no way to deny the excitement of starting your own business — otherwise why would so many people do it when it’s an enterprise fraught with so much intrinsic risk?
While there’s no easy part of running a small business, whether it’s dealing with customers or managing employees or improving a product, finances are arguably the most difficult, and the area that causes so many business owners to fail.
Any business owner must find time for every aspect of their company, but there should be a weekly if not daily slice of work carved out just for managing the money.
None of the other problems you face — angry customers or employee wages — will matter if you suddenly lack the capital that you need to solve every other problem. Not only that, but smart financial strategies should happen early and frequently. Small mistakes in the beginning often become standard practices that have big consequences in the long run.
That’s why it’s so important to continually review your financial operations and ensure the most efficient and legal system possible.
Separate Personal and Professional
If you’ve spent any amount of time reading about financial planning for business owners, then you have likely seen this one before. Doesn’t matter. It’s that important.
It’s academic by now that the failure of business owners to keep an absolute disconnection between personal and professional finances is one of the leading causes of businesses to fail, said Tom Jakobek, a former budget chair for the City of Toronto and current CEO of KBNJ Consulting Inc., a Canadian construction firm.
“It’s not too difficult to start a business entity like a corporation or LLC, allowing you to then create business accounts and credit lines only for your business,” Tom Jakobek said. “This is basic stuff, and that’s why it’s important.”
A big reason for that is the IRS. Come tax time, you can feel safe in avoiding problems if you have made sure to keep financial boundaries and every possible financial record proving it. If you live in Toronto, you can take help from reliable Toronto accounting firms to do your tax work innovatively and efficiently.
Find the Best Possible Bookkeeping
You don’t want to delay this one, either, yet it’s another common mistake made by first-time business owners.
Even with a tiny profit margin at the beginning of your business, it’s crucial to create an efficient and reliable system for tracking your expenses.
If your business does not have a codified system for bookkeeping and expenses, then you have already made a big mistake that must be corrected as soon as possible.
Without smart bookkeeping, it’s impossible to really understand where the majority of your revenue is going, how large a rainy day fund you should have for slumps in business, or how to financially plan for growth if business is going great.
“When starting out, most small companies can get by with a simple bookkeeping service,” Forbes wrote. “As the business grows, however, you will quickly require a more sophisticated financial infrastructure that can evolve as you scale.”
No matter how good you are with numbers, don’t try to keep track in your head. You need the most sophisticated software you can find. If that sounds daunting or unpleasant, no problem — hire someone else to do it for you.
If your business grows, then you will need to delegate this task eventually anyway. That way you can focus on the leadership, and allow someone else to crunch the numbers.
Avoid Big Expenses
Many business owners feel so excited about the start of this chapter of their lives that they immediately want to create the state-of-the-art workplace they imagined, complete with the latest computers, a snazzy website, and modern technology.
That’s not always a good idea.
Some expenses, like building an impressive website, might be worth the money. But when you’re spending a lot of money early on in the lifecycle of your business, you should always ask yourself if it’s going to create revenue in the short-term.
And finally, this advice from Sophia Bera, founder of Gen Y Planning, is a good general model for all of us to follow.
“Invest in growing your career and building a business,” Bera said. “The more you can increase your income and become an expert on a specific area, the more money you’ll have to reach your financial goals faster than you ever imagined. This creates options and flexibility in the future as you grow your business.”