Whether you’re using virtual offices for startups or your kitchen table for a side hustle, running a new business is both exciting and overwhelming. As a new owner, you need to develop products, hire employees, find customers, and monitor the financial health of your growing company—failing to do the latter can lead to disaster.
By planning your finances, however, you can avoid common pitfalls and set your business up for success. Below are our top five tips.
1. Separate Your Personal And Business Finances
When starting a new business, many founders use their personal capital to grow their venture in the hopes of a good return on investment once the business becomes profitable. Unfortunately, that hoped-for profitability is far from guaranteed.
To avoid confusion and potential legal issues, keep your personal and business finances separate. Open separate bank accounts for your personal and business finances, and make sure to keep accurate records of all transactions. Those records make it far easier to manage your money and file your taxes.
2. Reach Out To Experts To Save On Taxes
Speaking of taxes, they can be incredibly complicated, especially for new business owners. Rather than trying to figure it out yourself, it’s often helpful to consult with accounting experts who know the ins and outs of different tax-saving strategies.
For even more tailored advice, it’s best to look for tax professionals who specialize in small business taxes. Not only can they help you to understand what you owe (a confusing exercise in itself), but also identify the best opportunities for savings. Reducing your tax bill keeps more money in your pocket which you can reinvest to grow your business.
3. Pay Yourself A Fair Salary
Although it may be tempting to forgo a salary or pay yourself a bit too much, it’s best to settle on a fair wage for what you do. This ensures that you’re appropriately compensated for the (often huge) amount of energy, effort, and time you pour into building a business, but it also helps establish healthy financial habits.
To determine what a fair salary looks like, research what the industry standard is and reflect on the value you bring to your business. Then, include your salary in the overall business budget and pay yourself regularly.
4. Manage Risks Effectively
Although this tip may seem obvious, it’s important to emphasize. Running a business of any size involves taking a certain amount of risk. Learning to manage those risks effectively can help you avoid potentially devastating financial losses.
Start by identifying which risks are most relevant to your business—are they security breaches, natural disasters, employee errors, or something else? After identifying the risks, develop strategies to mitigate their effect. This might include purchasing insurance, diversifying revenue streams, or building up an emergency fund. A proactive approach to risk management protects your business from unexpected events, better ensuring its long-term success.
5. Track Your Burn Rate
Track your cash burn rate to see how quickly your business is spending its cash reserves. This vital metric lets you know how long your business can operate before running out of cash, which in turn allows you to make more informed decisions about spending.
To find your burn rate, calculate how much cash your business has on hand and how much it spends each month. Divide the total amount by the monthly expenses to determine how long your business can operate and how it should manage its finances.
Proper financial planning is crucial for new business owners. Keep the above five tips in mind to build a solid foundation for your future success.
Read Also:
- HOW TO AVOID BANKRUPTCY AND PROTECT YOUR BUSINESS FROM GOING UNDER
- IS IT WORTH GETTING A SPECIALIST FINANCIAL TRANSLATION SERVICE?
- SAVVY WAYS TO FINANCIALLY MAINTAIN YOUR DIGITAL NOMAD LIFESTYLE
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