Creativity, determination and perseverance are some of the top qualities successful business owners possess. One they often lack is the ability to manage the financial side of the business.
More often than not, failure due to financial hardship can be traced back to the very beginning of the process. A startup costs money – lots of money – something that is often underestimated by small business owners. It’s a costly and dangerous mistake to make…
So how can you avoid financial distress?
- Cash reserves – this is the most important step. Starting with an adequate well of reserves can allow for spending flexibility and a safety net that can and will assist through each stage of business development. A cash reserve pulls you out of unpredictable pitfalls and helps work through the difficult first years where profits are not yet piling in.
- Set realistic goals, across the board but most importantly when it comes to your sales/profit goals. These are what you are basing the rest of your operations on – the assumption you will make X amount of money in Y amount of time. Assumptions and projections are just that – assumed and projected, not confirmed! Back up your projections with quantifiable calculations, real numbers and real assessments – the more specific, the safer
- Don’t mix business with personal. This goes for personnel, operations AND financial management. In this instance, the pitfall to avoid is mixing personal and business finances. Separation of accounts is an absolute must – and do everything you can to keep it that way. If you have to borrow from personal sources, write it into the business plan as an investment.
- Controlled spending and limited borrowing can also keep you out of the danger zone. Big, unnecessary expenditures will create a sinkhole that is hard to get out – you must be choosy, tighten those purse strings. Purchase what you need to get by, and not more. While borrowing is often necessary, amassing huge debts right off the bat is a no-no. The deeper you go in the hole, the harder it is to climb out later in the game.There are plenty of software programs out there that can help keep finances in check – consult with us on what might work best for your business. Money management and crunching numbers may not be your specialty, so when in doubt, ask the experts!