Over 3.2 million Americans filed a business application in 2020, 500,000 more than in 2019. Are you a member of this group? If so, you’re proof that the entrepreneurial spirit is alive and well in America despite present day challenges.
As a new business owner, you’re likely struggling with where to spend your valuable resources (time, energy and money) to run the most successful business you can. While it may sound obvious, your finances are one of the most critical elements of any business.
In this article, you’ll learn five tips for getting your new business finances set up for success this year. Here’s a hint: it starts with your mindset.
Understand your relationship with money
You might be thinking, “What does this have to do with my P&L statement?” A lot.
Everyone has beliefs and feelings around money that affect the day-to-day decisions he or she makes in business. While some entrepreneurs are clear and connected to their money, others prefer to bury their heads in the sand until tax time or hand off the numbers to someone else.
When you understand why you make particular decisions, it will change how you run your business, make decisions, handle work-life balance, prioritize and grow.
Planning and tracking your money closely will give you a deeper understanding about your money behaviors.
Plan and track your earnings and expenses
As an entrepreneur, you likely make many of the financial decisions for your business. The only way to make informed choices is to know how much you’re earning and how much you’re spending in real time. You can accomplish this by tracking and planning your finances.
Planning allows you to schedule monthly, bi-monthly, quarterly and annual expenses and income to project revenue goals. Planning also gives you clarity about what is possible in your business.
Here are some questions to ask yourself when planning out your expenditures:
- Do I need more equipment?
- Do I need to hire a full-time or part-time employee? For how many hours?
- Do I need to invest in professional development? (courses, certifications, etc.)
- Do I need to expand?
- What are my projected cash flow and expenditures?
- Do I have debt? What are my monthly payments?
Tracking your finances is just as important in your business as in your personal life. It takes time and effort, but you’ll gain total control and clarity about where your money is going by tracking all of your transactions.
As an entrepreneur wearing many hats, it’s easy to lose track of all the expenses you incur and when they are due. Website costs, subscriptions, courses, email service providers – the list can be lengthy. Plus, many services auto-renew, so you may be paying for a tool you don’t even use.
By planning and tracking your expenses, you’ll be able to manage your cash flow with confidence and avoid surprises at tax time.
Reverse engineer your numbers
Entrepreneurs often struggle to price their products and or services, or have a hard time figuring out their salary. Often, they look outside of their own business needs and start comparing themselves to their competitors to figure out their pricing model or strategy.
The most effective and systematic way to figure out the numbers is to reverse engineer pricing and income based on what you need to earn to live and thrive.
For example, if you need $3K per month to pay for necessities, and your business needs $2K to run, you can figure out how much you need to sell and at what price point to meet your needs.
When you land on the amount of money you need to take home, you can ask yourself:
- How many clients do I need to take on?
- What do I need to charge for this product or service?
- What do I need to make to reach my goals?
Often, entrepreneurs focus on charging their customers based on factors that have nothing to do with them. Your needs, goals and values should determine how you run your business.
Be your own bookkeeper
By this point, you’ve noticed a trend toward the importance of financial intelligence. Above all, successful entrepreneurs understand that in order to thrive, you have to take charge of your finances from the onset.
Finances don’t have to be overwhelming or confusing. Many entrepreneurs shy away from getting into their numbers because they fear that they won’t like what they see.
They worry that they’ve earned less or spent more than they thought, or vice versa. But, the only way to get a grip on your finances is to be involved.
You can hire a bookkeeper or rely on a software program to help you. Still, you must understand your numbers to learn more about your business and focus your resources suitably.
Define success for yourself
If you’re selling a product or service in the digital space, you’ve likely seen a lot of marketing celebrating the six- and seven-figure entrepreneur. The entrepreneurial ideals of “more, more, more” don’t suit every entrepreneur.
Successful entrepreneurs think differently about money management and personal finances, and it shows in their results.
For example, many entrepreneurs start businesses to take control of their work and their time. To honor their desire for balance, they assign a dollar value to the amount of time they hold for themselves, even if that means making less.
Measures of accomplishment and wealth are personal. If you don’t define success for yourself from the outset, you can run the risk of spending your money and energy in places that don’t serve your business or yourself.
Forget about the overnight millionaires. Focus on your own goals.
The numbers tell a story
Behind every startup is a passionate, courageous entrepreneur dedicated to making his or her business a success. As a new business owner, you have the opportunity to set yourself up for success by adopting good money habits. That means understanding your approach to spending and saving, planning and tracking your money, and defining success and how you’ll reach it for yourself.
Make checking in with your money part of your daily routine; your business will thank you! Good luck!