Managing finances is a common struggle for entrepreneurs. Many entrepreneurs are skilled in their area of expertise but lack the structure or background to put a strong financial management system in place.
Fortunately, financial management is a series of behaviors and habits anyone can learn. Here are seven powerful financial management tips to help entrepreneurs get on track to success.
Improve Your Credit Score
Your credit score is more than a summary of your financial history. This metric is a critical asset when looking for financing or credit with lenders and vendors. While you can get urgent loans for bad credit in a short-term situation, creating opportunities for long-term support is essential.
Several factors influence your credit score. Things like borrowing and making payments on time help build a credit score. Many entrepreneurs with poor credit get a short-term loan to help rebuild their scores using this strategy. Late and missed payments negatively impact your score, as do collections reports.
While shopping around for financing is wise, it’s important to understand that hard inquiries (when banks and lenders run credit checks) also negatively impact your score. Understanding the variables and putting proper habits in place can help boost your credit score fast.
Build An Emergency Fund
An emergency fund is intended to help you rely less on credit when an issue arises in your business. Ideally, your emergency fund should cover a month to three months of business operations. This consideration is especially important for entrepreneurs who work alone.
Start by putting small increments of money into a high-interest savings account. Pull funds when unexpected expenses arise— not monthly budget things. Build the fund over time and replenish it as needed.
Separate Your Finances
Keeping personal and business finances under a single umbrella is a common mistake among entrepreneurs. Separating your finances is a must for long-term success. Separation makes it easier to track business expenses and simplifies tax time. It also adds an extra layer of protection during taxation or litigation— i.e., it’s harder to go after your personal assets if your business gets sued.
Keeping finances amalgamated may seem more convenient in the early days of the business, but it can have disastrous consequences.
Pay Yourself
Another common mistake many entrepreneurs make is failing to pay themselves a salary. If you run a profitable business, you may draw funds as needed. If you have a new business, you’re likely struggling to pull any money from your enterprise.
Consider setting a set percentage or salary for yourself, starting small and expanding over time. You can try the profit first approach or work with an accountant to determine the best path for drawing a salary.
Plan To Scale
Don’t get caught in the trap of overextending your finances during the early days of your business. Instead, start with the bare minimum with a plan to scale and grow over time.
If you’ve secured business financing, be strategic and intentional with your spending; don’t use it all if you don’t have to. If you determine that you need a company car to operate your business, purchase something used or basic. Consider whether you need an expensive color copier or if a basic office model will be fine.
Take advantage of freemium services to replace expensive software costs. Start with the basics of everything that isn’t necessary for product manufacturing or order processing. Then, upgrade as funds and demand allow.
Revisit Your Expenses
The budget and expenses that work for you and your business today, may not work tomorrow. Set aside time every month to review your expenses and determine whether there’s room for improvement. Each quarter or fiscal year, do a deeper dive into your systems and programs to see if you’re due for an upgrade.
Cultivate Vendor Relationships
Build relationships with your vendors and treat them with respect. Yes, you are their customer and deserve great customer service. However, they’re also foundational in ensuring your business operates and meets demand.
Ensuring you make your payments on time and building a friendly rapport is an overlooked financial strategy. This positive relationship is helpful when you want to renegotiate your terms or need extra time to make a payment during unexpected challenges. Vendor relationships could make or break your business.
Keep these financial management tips in mind to get your money under control. Entrepreneurs face unique challenges, but with care and consideration, you can improve your personal and business finances.
