Each year, more than 400,000 new businesses will open their doors in hopes of becoming the next success story within an industry. After just one year, 20% of these new companies will have to shut their doors for good. This is not said to deter you from starting a business, but rather to provide insight into how much preparation and hard work owning a business will require.
If you are thinking about taking on a side-hustle and turning it into a legitimate business, there will be many hurdles along the way, but the freedom and empowerment you will gain from owning a business will be worth the work.
By now, you likely have visited many business blogs in search of advice for a first time business owner. Well, look no further than here to gain some insight into how you can best balance your finances as a first time business owner. Here are three must-know financial tips to help you get started on your entrepreneurial journey!
One of the most common reasons that businesses fail within the first few years of being open is due to a lack of capital. The age-old mantra 一 you need to spend money to make money 一 can sometimes be true. For a business that is just starting out, having buying power early on will help you create the business you envisioned in the start. Having capital on hand will also allow your business to capitalize on immediate opportunities within your industry.
As a new business owner, it can actually be much more difficult to gain access to capital than one would expect. Most business lenders will want to see that your business is successful and can make money before lending you money. This means that a business loan is out of the question until at least six months into your business’ life, if not longer.
To best ensure that your business starts off in a good place, both financially and organizationally, it is important to seek capital elsewhere during the infancy of your business. Some of the best places to look for financing are:
Personal Loan – One way to gain access to a large amount of capital when you are starting your business is to apply for a personal loan. A personal loan can be used for just about anything, which makes them perfect for a business that is brand new. Before applying, take the time to learn about the different types of personal loans to ensure that you are selecting the right capital solution for your business.
Bootstrapping – Depending on your existing financial situation, a loan may not be required to start your business. If you have a decent amount of savings built up, try to add to it by cutting other personal spending. Any bit of money that you can save should get put towards the formation of your business.
Friends and Family Loan – Mixing your personal and business life is always a risky step to take, but sometimes it will be your only option. If you do decide to ask any of your family or friends for money, make sure that you draft up a legal loan agreement, just as you would with a financial institution. This will make the agreement feel more legit and ease the concerns of everyone involved.
The initial cost of starting a business can be a difficult hurdle to overcome, but if you approach the situation in the right mindset, you can easily find the money you need to start out. Down the road, you will be able to access funds from a business loan or other government programs.
After you gain the money to start your business, it would be wise to separate personal and business finances as soon as you can. As we mentioned, this can be impossible in the formation stage of your business, but after that, it is almost necessary if you want to be a successful business owner.
To get started, there are a few key actions you will need to take to separate your finances. First, it would be wise to set up a business account with a bank of your choice. Applying for a business bank account is similar to applying for a personal account, but the financial institution will need a few additional items from you. These items include:
- Business Formation Documents
- Ownership Agreements and Documents
- Official Business License
- Employee Identification Number (EIN)
If you need assistance in obtaining any of these items, you can either contact the SBA or go down to your local Small Business Development Center (SBDC) for help.
Opening a business bank account is just the first step to take when separating your personal and business finances. It is a good idea to get a credit card for the business as well.
Once you have done all of this, make sure that you stay on top of your spending habits. It can be easy to throw a personal purchase or two on your business card, but that is a slippery slope to go down that can result in overspending. Be strict with yourself and only use business funds for business purchases. It will be difficult, but the benefits of separating your finances will only help your personal and business financial health in the long run.
Utilize Financial Tools and Experts
Once your business is up and running it can be difficult to take a back seat and let others help you. Just know that even though you are the owner and expert of your business, others will be more equipped to handle certain tasks. Nobody can be well-versed in everything regarding a business.
Tending to your finances is definitely an area that you will want to lean on outside help for. There is no shame in using outside help or tools to manage your day-to-day finances.
The first thing you can do to improve the financial health of your business is sign up and utilize a complete accounting platform. Accounting software allows small teams to manage all of their finances in one convenient place.
The best systems allow teams to implement financial information, automate tracking, log payments, and even can be used with other payroll and HR software offerings on the market. As you scale, these systems can scale too.
Check out the best accounting software offerings on the market today to see which one is the best fit for your business.
Outside of using tech to assist you with your business finances, it is smart to bring on a business accountant. Hiring a business accountant will allow you to delegate specific financial tasks to them. Software can go a long way, but having the human touch in your accounting department can prevent things associated with automated error and software inaccuracies.
The journey to getting out and owning your own business is an exciting one that will have some turbulence along the way. While there is no way to guarantee success, there are steps you can take to better improve your odds. Make the business a priority. Everything from the initial financing to later hires should be thoroughly thought through.