Being able to effectively manage your money can mean the difference between a successful business and a disappointing venture. While developing these skills might seem daunting, you don’t have to be a financial expert to be able to effectively handle your business’s finances and put yourself on the path to success.
Understand Your Financial Risk Tolerance
Often, the owner of a startup is the last to get paid during the early phases. When starting your business, you need to ensure that you and your family have the emotional and financial fortitude to handle the uncertainty that will follow.
Understand What Type of Funding Your Business Will Need
Not all startups are created equal – while some businesses can be started on small budgets, others need a lot of initial capital to get going. Lay your expenses out clearly in your initial business plan and ensure that your budget is prepared for a worst-case scenario. Financial experts state that you should double your initial projections to bring them closer to breaking even and triple your original time frames.
Choose the Right Business Structure
The structure of a business affects its taxes, liability protections for the owner, and other financial factors. Choosing the best structure for your business can ensure that you don’t run into issues later on and should be based on several factors such as the number of owners, pros and cons at tax time, and liability risk.
Understand Your Cash Flow
Cash flow is literally the lifeblood of your business – knowing how to manage it is the key to creating a successful business. The typical cash cycle for a business begins when you pay for inventory or raw materials and ends when you collect money from sales. The trick is to keep the number of days in this cycle as short as possible, ensuring that you have more cash on hand and rely less on borrowing. Develop a projection for this cycle and master it to ensure that there’s always cash flowing through your business.