If you were to examine the reasons small businesses fail, you would learn that poor finances is the cause of their demise. Many entrepreneurs have lofty dreams when it comes to their businesses, but they do not understand how business finances work. Hence, they put themselves in financial trouble for their big aspirations because they do not have a strong financial plan to follow.
It does not matter how great you believe your business is if you do not have the finances to support your beliefs. There are businesses operating right now which you would believe are great, but their finances are terrible. When you hear about a big company going out of business or filing for bankruptcy out of the blue, it is because they allowed their finances to get too far beyond their control.
As an owner of a startup, your main priority is to make money so that your business can grow. But your business cannot grow the right way if you are not utilizing the best financial practices that allow you to run a lean business operation that is easy to manage.
This means understanding how your spending affects your business. When operating a startup, budgeting tips should be your primary focus when it comes to money. You will be tempted to spend a lot of money to make your business appear successful, but this is only waste that you cannot afford.
The following are 5 budgeting tips to follow when building your startup:
Limit Unnecessary Personnel Spending
Starting and operating a business is already a challenging task. This challenge only intensifies when you spend huge sums of money on things you cannot afford – such as expensive employee salaries and costly benefits. You do not want to deplete the cash you have on hand by trying to prove a point that does not even need to be made.
You are operating a startup, so everyone in the company should know that you have to operate lean in order to ensure growth occurs. This means that sacrifices will have to be made in the short term to reach long-term goals. Your employee salaries should be reasonably set and can be incentivized with performance bonuses for exceptional work being done. You do not want to run yourself out of business by operating a charity rather than a business.
If employee benefits are necessary for your company, only implement those that are vital in pushing employees to work towards achieving mandated goals and desired objectives. The practice of delaying unnecessary rewards is to help you save money by breaking even and eventually turning a profit. Following this practice will also help you develop a culture of frugal and disciplined spending in your business.
Related Article: Why You Should Start a Business Immediately
Personal and Business Finances Must be Separated
When you start a business, you are known as the founder and owner of that business. The problem that usually occurs with new business owners is that they believe they are the business. This means whatever the money the business makes is money that they make. It will be impossible to run a successful business with this sort of mindset.
It is imperative that you always keep personal and business finances separate. Many business owners have destroyed their businesses by not following this mandatory advice. The money that your business makes should be designated for the purpose of properly financing business operations and investing in its growth. If you do not commit to separating your business and personal finances, you will keep withdrawing cash from your business like it is your personal piggy bank until it is empty.
just because you are the owner of a business, it does not mean that you should not be listed on its payroll just as an employee. Giving yourself a set salary ensures that you are making money from your business while also preventing you from unwisely spending your cash reserves.
Related Article: How to be Tax Savvy
Use Coupons when Purchasing
Do not try to impress people by making purchases just because you can afford to – or even worse, buying when you cannot afford the purchase. Having money on hand to make a purchase does not mean that you should spend that money – successful business owners always look for the best deal. You must develop the habit of shopping around for the best deal – especially online, where you will usually find huge savings.
Use coupons when making your business purchases to save yourself some money. By implementing this habit, you will be shocked when you realize how much you are saving. It is beneficial to always use coupons when they can be used for important business purchases. Coupons can be a great way to save when making large purchases, such as buying computers for your employees. Saving money through using coupon codes have been one of the main reasons some businesses have been able to start up and stay in operation.
Related Article: Government Funding and Assistance Schemes for Startups
Don’t Make Real Estate a Costly Overhead
The executive corner office is not necessary to run a successful business. Trying to look impressive will cost you significantly as the cost of taking on such overheads becomes too much to handle. Many businesses that are successful today started in garages, bedrooms or coffee shops. Just look at the success of Google, Apple and Microsoft if you need further validation for this claim.
It is a foolish decision to spend money on expensive real estate that does not produce a direct benefit for your business. If your real estate purchase does not generate consistent income, then it serves you no purpose. If you have free space in your house, it can be turned into the office that supports your business operations. As you grow bit by bit, you can run your business with your one or two employees from your home office – eventually developing it into an internationally recognized company.
It is in your best interest to let your business grow and expand organically. This helps tremendously when you are preparing to make a real estate purchase for your business. Doing so will put you in the position to be able to afford such a purchase without putting your business through financial duress.
If it does not make a positive financial impact on your business, then it is not an immediate need. Start your business cheap and scale up as you develop and grow. You can start a six-figure business with minimal cost and add on overheads as you seek to expand into the seven-figure range and higher.
Related Article: 5 Common Pitfalls of New Singapore Startups
Purchase Insurance for Key People in Your Business
Every business has one, or a few people, who play a major role in the success that the business experiences. Without such people, your business would not have survived and attained the the growth it has. So you must be sure that these people are always around, continuing in their efforts to further develop your business. The purchase of key person insurance will help to protect your business if anything unfortunate were to ever happen to these very important people. As you are the business owner, you are entitled to be within this category.
Key person insurance is just another way to say life insurance – it sounds a little better. This insurance should be purchased for any co-founders and key employees on who play a major role in adding to the successful operations of your business. The business is the beneficiary under this policy. This insurance coverage is important because it designates that if any unfortunate circumstance should happen to any person under this policy, discontinuing his or her ability to work, the business will have other options available besides filing for bankruptcy.
Having this coverage will enable your business to use the insurance payout to take care of operating costs and pay off debts until you are able to find a replacement for the loss of that key person.
The ability to strategically align your business with a strict budget discipline is mandatory for its survival. Being that finances are the lifeline of all businesses, every startup entrepreneur should focus on how to efficiently manage his/her business budget. Do not make the mistake of trying to be a big business when just creating your startup. You will do yourself more harm than good – destroying your ability to grow from the very beginning.
A well-designed budget is a difference between failure and success. Starting off small and going the route of buying cheap is not something to be ashamed of. If more people do this, then there would not be as many business failures as there are. You can not spend your way to success as an entrepreneur if the ROI for your spending does not drastically outpace what is being spent.
You were provided examples of businesses that started off small and ended up growing into global brands. This is because they understood great businesses have to be built from the ground up – they do not start off from the top.
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