Running a small business isn’t easy, especially as you’ll be needing to take on a lot of the work yourself. Things you might not have had to consider before such as the marketing and people management could be completely alien to you. One of the biggest challenges you might face is dealing with the money side of things. Think you’re up to the challenge? Here are four ways you can be smart with your business’ finances.
1. Analyse your finances often
Big businesses base their finances around the fiscal year, which is great for them and their accounting teams but not always ideal for small businesses. For small businesses, it makes sense to analyse your accounts monthly. If you lack the expertise in managing your accounts, take a look at the best accounting software for small businesses that could give you a helping hand.
Being able to work out where your successes and failures are at a closer level will mean that you can avert long-term problems and make appropriate forecasts for the coming year.
2. Separate your business and personal finance
Many people who run a small business do this as a contractor for hire or as a small company that doesn’t have its own accounts. It’ll be a good move for you to open a separate account and to manage your personal finances elsewhere. If you pay yourself a salary from your business’ profits, make sure that you do so as a regular transaction.
Keep all other money in your business account to cover bills and expenses. This will help you to manage your year-end accounts better and stop any overlaps between your two areas of finance.
3. Have contingency plans
It doesn’t hurt to have some funds set aside in case your business runs into trouble. When your business is doing well, you should put some aside as a way to ensure you’re covered should anything go wrong. You might want to invest some of your profits as a way to generate further income, and you can click here for more information about the types of investments available to you.
If you foresee serious financial issues, you should make an appointment with your bank manager and see if they can recommend solutions to ease financial problems in the short-term while things resolve themselves.
4. Be frugal
If you were to need money for personal purchases, what would you do? Realistically, you would find ways to budget and make cuts that will help to free up additional money and help make those savings. You should apply the same principles to your business. If you can find ways to be frugal with your business, do it. Ways your business can be frugal include cutting out unnecessary software costs and adopting greener policies in the workplace. It may take some sacrifices, but it can be done.
Managing your business’ finances is a key part of keeping it afloat and making it a success. For further advice on making your business run like a fine-tuned machine, even when you’re not there, read this great article for advice. Getting help from others will make you a better business owner and help you learn from their mistakes.
Money makes the world go round, and it’s what you’ll need to get your business off the ground. Although there are some initial things that can be done on the cheap, or even for free, if you want to go from having a sound business idea to owning a successful company, you need money to expand your startup. Whether you use the money to hire a bigger team, rent an office space, or increase your range of products, having funds available can give you more freedom to experiment with your business and take it to the next level. Here are just a few ways you can go about securing the right finances.
If your business is, at the moment, nothing more than a side hobby that you do from your laptop then you might still have a day job to help you pay your bills. In which case, it might be a good idea to use any extra funds to open a business account and start saving money exclusively for your business. The great thing about using your own money to start up, is you don’t have to go cap in hand to anyone else.
Plus, there’s the added bonus of not starting out in debt, or giving away equity at an early stage. There are other advantages too – if you want to pump more cash into the business later on, investors often like to see you’re committed to a venture enough to put your own financial weight behind it. You can even contribute more to your business savings by selling stuff on eBay, selling a few assets, or monetizing your blog. However, it could take a long time to save the money you need, and it puts more pressure on you to succeed because you could lose everything if your business fails.
Why shoulder the burden of financing your business on your own when you could find an interested partner to share the costs. Your partner can be someone interested in acquiring your talents, or someone who you know has skills that could be valuable to your business. If, for example, your business is making homemade jewellery and selling it online; your strength might be in the jewellery-making and creative part of the business, but the marketing and website maintenance might be slowing you down.
Therefore, you could take on a partner that is experienced in designing and maintaining websites, and has fantastic ideas for how to market your jewellery. You work on providing the product, they focus on selling it; it’s a beautiful partnership which makes running your business less stressful. At first, you might be a big reluctant to give up a share of your business and profits, but if your partnership increases your productivity, you might end up with even more business than before.
Unsecured business loan
There are many types of loans available for business startups and entrepreneurs, but they all have one thing in common; they usually require you to put up an asset equal to the loan that they can claim as collateral should you fail to repay your loan. It’s all well and good, but most young entrepreneurs don’t have any assets to put up. Fewer and fewer millennials own cars, houses, or even anything that is equal to a thousand dollar loan.
Fortunately, there is another option. Unsecured loans are a great funding option for businesses that don’t own many assets, businesses that would prefer not to offer security, or any company that’s growing fast and needs finance quickly. You can head here for more information about the terms and application process, but all you really need to understand is that the unsecured business loans from unsecured capital generally span 6 to 12 months and do not require any form of security — no car, family house, or expensive heirlooms are at stake if you fail. This can make the borrowing process less stressful, and you can just focus on making your business as successful as it can be.
When you have no credit history, collateral, and a history of bank rejections, it feels like no one wants to give you a loan. However, that doesn’t mean that there is no chance you’ll get one eventually. Microloans are small business loans that are generally used for start-up cash but are sometimes given to newly launched small businesses for working capital. Usually they will lend you between $500 to $35,000, however, some lenders will allow microloans up to $50,000.
The reason you won’t find this option at your bank is that some of the loans are so small (hence the name) that it’s not worth the bank offering you a deal. Instead of a bank, you need to turn to a microlender. a non-profit organization that works differently than banks.
Microlenders offer smaller loan sizes, usually require less documentation than banks, and often apply more flexible underwriting criteria. In general, the maximum term for microloans is 6 years, but interest rates and collateral requirements vary considerably between microlenders. Most microlenders require a personal guarantee by at least one of the business’ owners.
If you have an idea that you feel has a lot of potential, then someone else might believe it’s a worthwhile investment. In the past, you might have had to pitch your idea to the appropriate businesses, but now anyone can reach out to Angel Investors regardless of your target market. A business angel can be an acquaintance, a former employer or someone you’ve found through a funding network.
There’s no hard rule other than that this kind of funding involves an individual or group that offer cash in exchange for a share of the business. Sometimes they take an active role in the venture and sometimes they act as silent partners. When pitching an angel investor, all the old rules still apply: be succinct, avoid jargon, have an exit strategy.
However, you can stand out more by proving that you know your stuff. When you show up to your meeting, bring market assessments, competitive analysis and solid marketing and sales plans. Even young companies need to demonstrate an expert knowledge of the market they are about to enter as well as the discipline to follow through with their game plan.
If an angel is not interested in your startup at the moment, keep them in the loop about your major developments anyway. Maybe they’ll be interested once you’ve shown you can successfully develop a company, or maybe they know someone who is more suited to be your investor.
Sometimes it can pay off to start small. Many YouTube vloggers, bloggers, or Instagram comic artists manage to acquire a sizeable following for their work, and their fans are always eager to see more. If your small business has enough loyal followers and you can usual track this with an app or widget that tracks visitors to your website then you can ask them to donate money for your next big project.
A crowdfunding site like Kickstarter.com or Crowdcube are web-based projects that allow individuals with a business idea to reach out to investors. Patreon allows fans of your work to give you money on a monthly basis, or just a quick one-off payment whenever they can spare a few dollars. You can set a goal for how money you’d like to raise over a period of time, say, $1,500 over 40 days, then ask your followers to log onto your Kickstarter page to donate money for your project.
Kickstarter has funded roughly 1,000 projects, from rock albums to documentary films since its launch last year. But keep in mind, your investors usually expect something in return for their donation. Usually, project-creators offer incentives for pledging, such as if you give a writer $15, you’ll get a book in return.
There’s no long-term return on investment for supporters and not even the ability to write off donations for tax purposes, so an incentive is key to getting more donations. Bear in mind that close to 100,000 people pledge to Kickstarter projects, so it’s worth looking into crowdfunding.
A penny saved is a penny earned, and you need to earn quite a few pennies if you’re hoping to expand your business. The key is to not rush to make any business purchases that you won’t need right away. If you’re happy to keep working from your laptop at home for a bit longer, and it won’t affect your business negatively, then there’s no need for you to spend a sizeable chunk of your savings on renting an office.
Thanks to technology, advertising doesn’t have to drain your funds either; most of your advertising can be done by sending emails directly to customers on your mailing list, or through the social media pages for your company. If your business has an aspect of customer services, then encourage word-of-mouth advertising by giving discounts to customers who recommend your services to a friend.