Finance

Top Financial Steps to Take Before Starting a Business

plan to start a business

Starting a business is a big deal with lots of moving pieces. One thing you need to have figured out well in advance is how to finance your business and keep it going. Your goal is to make money. However, that often takes time, so you need to have a plan to cover your bases throughout the life of your business.

Questions you need to ask yourself before setting up shop are: Where will your startup costs originate? Who will manage your financials? What is your plan for when cash flow is tight? You must strategize beforehand to have a contingency plan to answer all of these questions.

Experts recommend that you have a formal business plan in place before you initiate any real forward motion for your new business. Your business plan provides the blueprint for starting and keeping your business afloat in good times and bad. Your plan will include sales figures based on solid research and expected expenses for at least the first three years.

Where Will You Acquire Your Initial Investment?

Depending on the type of business you plan on starting, your initial investment could be easily affordable or a tremendous sum of money, and it all comes down to perceived costs. How much backstock? Employees? What about business insurance?

While it is always best to use personal savings for your initial investment, that is not always possible. Another riskier option would be to leverage the equity in your home or other properties with a home equity or mortgage loan.

You can also use loans and lines of credit, but your investment will end up costing you more in interest. Family members or outside investors are another great option. Be sure to legalize the financing agreements to avoid any misunderstandings later. Credit cards are something you might want to avoid if at all possible.

Some small business associations offer grants or low-interest loans to budding professionals. Some quick research online will tell you if you qualify and how to apply. Local chambers of commerce may also have thoughts on how to obtain financing for your new venture. There are tons of good options for financing your dream.

Who Will Manage Your Ongoing Finances?

Another part of the planning phase is deciding who will manage your books. Will you outsource to a bookkeeping firm and an accountant to do your taxes, or will you handle everything in-house? Are you able to manage them yourself? Do you have the time and expertise?

One thing you do not want to do is keep shoddy books. Keeping a close eye on cash flow is critical when just starting out. You also need to know the numbers inside and out, especially when cash flow is tight. You can hire a bookkeeper pretty easily to manage the day-to-day tasks and then an accountant for the larger, big-picture items.

Regardless of who does your accounting and bookkeeping, you should make sure they update you daily as to where you stand so you can adjust operations and move money around if needed. Keeping your pulse on your financial standing is critical to your success. One day of good or bad decisions can make or break you.

Make it Easy for Customers to Pay You

When setting up your products or services to sell, making it easy for your customers or clients to pay you will save you headaches down the road. Everyone is different, so you will want to offer a variety of payment methods.

Americans still love their credit cards. The U.S. carries more than $884 billion of revolving credit card debt, and that is not going away anytime soon. Set up mechanisms to accept all the major credit cards. Other options of online payment portals and digital currency are attractive to many buyers as well.

You might even consider a rewards program for when customers pay you, so they can earn points towards merchandise or discounts later. This may encourage loyal customers who come back time and time again to spend their money at your business.

Also Read: Best Tips to Consider When Starting a New Business

What Will You Do if Money Gets Tight?

Before you rent space or buy machines to start producing your wares, consider what you will do when money gets tight. Say you have a week or a month where sales dip lower than expected, or you have higher than usual expenses. Sometimes unexpected things will occur that cost extra money; what do you do then?

Many business owners set up a line of credit, and they only use it when they need it. It’s like an overdraft account, so they just use the funds they need, then pay them back when they are flush again. The next time they need extra funds, the money is still waiting there in the pool to pull from. A business line of credit offers flexibility and a safety net.

If you establish good credit for your new business, you can apply for credit cards for emergency use as well. You don’t ever want to be in the position of not being able to afford your daily operating expenses. Give yourself plenty of leeway when budgeting.

How to Keep Cash Flow Consistent

The best way to prepare for business finances is to create a budget. You will want to be as detailed as possible and prepare for any contingency. Be sure not to inflate sales figures — be realistic. Budget for unexpected expenses so that no matter what happens, you will be ready.

Don’t forget things like permits, licensing, insurance, interest, late fees, and other annual costs when preparing your cash flow. People often miss this step during the budgeting process. Do as much research as you can and talk to other owners of similar companies. They may have some good insight on hidden costs that you were unaware of and would never have included in your cash flow plans.

As your business grows, the management of your finances may become more complex. You can hire a dedicated finance manager to oversee investments, purchases of new equipment, and loans. This person can keep you apprised of what is going on, or you can hire an outside firm to handle it. Either way, as the owner, you should know exactly where you stand financially at any given time. You are the bottom line when it comes to your business and as long as you are prepared and informed, you can face any financial challenge with ease.

About Ajeet Sharma

Ajeet Sharma is a financial blogger & blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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