Starting a new business is exciting and if successful very rewarding, but it can also be challenging, especially when it comes to managing finances. Not only do you still have your personal finances to manage, but you also now have business finances! As a new entrepreneur, it’s essential to have the necessary financial skills to ensure the success of your business. In this article, we’ll explore the Finance Tips for New Entrepreneurs, how entrepreneurs typically finance their businesses, and provide eight amazing finance tips for new entrepreneurs.
Why do entrepreneurs need financial skills?
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Entrepreneurs need financial skills to manage their businesses effectively. Financial skills are essential for budgeting, forecasting, understanding financial statements, managing cash flow, and making informed financial decisions. Sounds like a lot, I know but having sound financial skills is critical to the success of a new business.
What are the finance skills for a new entrepreneur?
An entrepreneur needs to have a basic understanding of accounting and financial statements, budgeting, forecasting, cash flow management, and investment analysis. They should also be proficient in financial software and have excellent communication and analytical skills. Unfortunately, most of these skills are not taught in schools and as a business owner, you’re just expected to know this stuff!
How do entrepreneurs typically finance a new business?
Entrepreneurs typically finance a new business through any combination of personal savings, bank or family loans, crowdfunding, and venture capital. It
‘is essential to choose the right financing option for your business and ensure that you can manage the debt effectively.
Here are 8 finance tips for new entrepreneurs:
- Look to bootstrap.
Bootstrapping involves starting and growing your business with minimal external funding. This means that you’ll need to be frugal and resourceful, using your personal savings, revenue from your business, and reinvesting profits to grow your business. Bootstrapping can help you avoid debt and maintain control of your business. Having said that, it is also very important that a new entrepreneur be realistic about the start-up funds required – your start-up budget needs to include not just the operating start-up funds required but a realistic budget for marketing, accounting, and legal needs.
- Have a budget in place.
Having a budget is crucial for managing your business finances effectively. A budget will help you track your income and expenses, identify areas of overspending, and plan for the future. Be sure to include all your business expenses in your budget, including fixed costs, variable costs, and unexpected expenses. As said above, a lot of entrepreneurs focus so much on the start-up funds needed from an operation perspective but they forget three key elements: a budget for a lawyer, a budget for an accountant, and a budget to pay themselves!
- Learn to save early on.
As an entrepreneur, saving money is essential to the long-term sustainability of your business. The best way to do this is to start saving early on and build it into your operational habits from day one. By developing good savings habits right from the start, you’ll be able to build up a cash reserve that you can rely on when times get tough.
Some good ways to save include:
- Cutting unnecessary expenses. Evaluate your business expenses and look for ways to reduce them without compromising quality.
- Negotiating better rates with vendors. Don’t be afraid to ask for discounts or better payment terms.
- Setting up automatic savings. Many banks offer automatic savings plans that can make it easier to save a portion of your income each month. Pro Tip – automatically transfer the HST you collect and a reasonable % to a savings account for the estimated taxes payable!
- Explore investment options.
While saving money is important, it’s also important to invest some of your funds in order to help your business grow. There are many different investment options available to entrepreneurs, including:
- Bonds and stocks. Over time, investing in stocks and bonds can be a fantastic method to increase your wealth.
- Real estate. Purchasing property can be a smart investment, particularly if you’re able to generate rental income.
- Mutual funds. Mutual funds offer a convenient way to invest in a diverse portfolio of stocks and bonds.
When exploring investment options, it’s important to do your research and work with a reputable financial advisor who can help guide you through the process.
- Watch your cash flow.
Cash flow is the lifeblood of any business. As an entrepreneur, it’s essential to keep a close eye on your cash flow in order to ensure that your business stays solvent. Some good ways to manage your cash flow include:
- Creating a cash flow projection. This will help you anticipate any cash flow issues before they become major problems.
- Maintaining a cash reserve. Having a cushion of cash can help you weather any unexpected cash flow shortfalls.
- Offering incentives for early payment. This can help encourage clients to pay on time, which can help keep your cash flow stable.
- Maintain records.
Good record-keeping is essential to the financial health of your business. By keeping accurate and up-to-date records, you’ll be able to track your business’s financial performance over time and make informed decisions about future investments and expenditures.
The three main financials we refer to in decision-making are
- Income statements
- Balance sheets
- Cash flow statements
- Avoid personal debt at all costs.
As an entrepreneur, it can be tempting to use personal debt (or family savings) to finance your business. However, this is generally a bad idea. Using personal money to finance your business can put your personal finances at risk, which can be catastrophic if your business runs into financial trouble.
Instead, try to finance your business through alternative means, such as:
- Business loans
- Angel investors
- Venture capital
- Invest in quality insurance products.
As a new entrepreneur, you face many risks, both financial and otherwise. That’s why it’s important to invest in quality insurance products to protect your business and your personal assets. Some key types of insurance to consider include:
- General liability insurance
- Professional liability insurance
- Workers’ compensation insurance
By investing in these types of insurance, you’ll be able to protect your business from unexpected financial setbacks and ensure that you’re able to keep your personal assets safe as well.
Another insurance product often forgotten by entrepreneurs is life insurance and critical illness and disability – how will your business keep going if you, or your business partner, is not around? These personal lines of insurance can help safeguard the business in your absence!
Starting a new business should be an exciting and rewarding experience, but it can also be a challenging one. By developing strong financial skills and following the tips outlined in this article, you’ll be better equipped to navigate the finances. For more help, you can visit our Small Business page our expert team will help you with your finances.