Financial Management Rules
Let’s talk about how to manage finances at the very beginning of the business and to prevent financial mistakes, which are made by novice entrepreneurs.
Many novice entrepreneurs, seeing the ultimate goal of their business, making money make typical mistakes in money management at the very beginning.
For many of them, it becomes a fatal mistake, which leads to the fact that the young business is closed because… “He didn’t have enough money. We have summarized the recommendations of Western and Russian financial consultants into a few simple rules that will be useful to any start-up business, regardless of its sphere.
Separate your personal finances from your business
This is perhaps the first rule to be taken as a rule, and not always followed even by experienced entrepreneurs. It is important to share the cash flow when buying things necessary for business and personal use, cash for entertainment and dinner at a restaurant with friends.
Most often such a situation arises when an entrepreneur works alone. “What difference does it make? Everything is taken from one pocket and then gets there! Formally, yes, because you invest personal funds and take profit for personal needs.
However, if you do not keep separate accounting, you can not correctly assess the work of capital in your business, analyze the costs, worse predict costs and moreover, increase the risk that you will not even notice how the financial complexity of the business will become personal.
Keep your costs as low as possible
If you start a business from scratch (yes, it is possible) or even if you have some start-up capital, at the first stage spend money only on what is necessary to start your project.
If you’re making a relatively new product or service, don’t forget the principles of “economical startup”: make the simplest version of a product or service that replicates your idea as much as necessary to assess demand and adjust your idea.
If you’re starting a typical business with a predictable cost structure and payback period, don’t forget that the conditions are always different, what others have done may not work for you right away, so create the easiest and cheapest infrastructure to evaluate your capabilities at first.
Learn how to get some services for free or by barter. Get more help from your business and personal dating network, look for great offers, trade with suppliers, and find cheap promotion channels.
Perhaps later on, this strategy will not be very justified, but in the first few steps you will be able to attract the first customers and gain important experience with minimum cost. If this experience is unsuccessful, it would be a good idea to make it worth as little as possible.
Starting a business is not the time for high wages, unjustified expansion of the staff. Your ambitions will push you to do better than your competitors, but this can lead to you burying your first business at a high cost before your customers learn about your benefits. Try to compete for the first time on low cost and unique service.
Maintain management records
Record all of your expenses and income by defining the structure of the items you want to keep both planning and accounting for. Get used to it from the beginning. At the top level, it is common to divide the costs of core activities, payroll, marketing (customer acquisition), business activities and taxes.
Income – for core activities and related (e.g., partnership payments). Over time, articles may change and their detail may increase, but an understanding of the financial structure of your business should be developed from the first days. This is what will allow you to manage your business based on specific numbers.
Plan your expenses and income
One of the most important components not only of financial management, but of business as a whole is the budget. Many novice entrepreneurs do not understand that you can budget without the flow of clients and many items of expenditure. However, not having a financial plan and the most general financial model of business is the same as doing business without a goal.
Analyze the market, your opportunities at the start, make a profit and loss forecast and start doing business according to that forecast. Your very first forecast is likely to be wrong and will need to be revised very soon. This is not a big deal.
At first, your forecasts will require regular adjustments, but over time, you will find the market and learn how to manage the leverage of the business so that financial plans are implemented. A company that has learned how to plan well and execute its plans is stable in the market; it is much easier to get investments or loans for development.