As an entrepreneur, you know saving money is crucial. It can be tempting to throw all of your money into your newest venture, but doing so can risk heavy losses if it doesn’t take off. Even if your startup becomes an international success, you should still be keeping an eye on your funds.
Managing your personal finances as you’re starting a business is one of the best things you can do for your future. Need a place to start? Here are some tips about how to stay above water as you’re getting started.
Information on startups
Whether you’re starting your first business or your fifth, you’ve probably heard the statistics about how a majority of startups fail in their first year. It’s understandable to be a little nervous with such a considerable number of supposed “failures.” Should you still go through with starting your project?
Yes. The truth is, the previous statistic is inaccurate. The Small Business Administration reports that two-thirds of startups will be successful in their first two years. However, the number of surviving businesses drops to around half after five years. The same study shows that a poor economy has no reflection on the survivability of startups and the survival rates are similar across all industries.
So what could be causing small businesses to fail?
In a study done by Stanford University, the second-highest cause of startup failure happened because the founders ran out of money. This is why being proactive about your personal finances is so important. Suppose you’re putting all of your money into your project with no separation between personal and business and you run out of money. In that case, you will be putting yourself in a dangerous position.
Tips to secure your finances
Sometimes you need some help to know how to stay in a good place financially, regardless of business success. Keep these ideas in mind to save money while initiating your startup.
Make a thorough plan
In the initial phases of your project, you should know the best practice for making financial plans in your startup. How are you going to pay for any products and services that are necessary? If you need to hire employees, how much will you need to allocate for their wages? What kinds of laws do you need to follow to avoid fees?
Answering these questions early will help you spend your money wisely as you’re starting your business.
Put money in an emergency fund
Unforeseen circumstances will occur whether you’re running a startup or not. But when you’re spending money on a new project, it can be easy to let your cash flow run a little thinner than expected.
Ensure you always have enough cash to stay operational by allocating a set amount to an emergency fund each month. This will prevent you from feeling as though you need to use your personal funds for business expenses. Placing around 5% of your monthly earnings into a contingency fund should build up enough funding to keep your business running in more challenging times.
Find free avenues to get things started
At the beginning of your startup, you should expect to be spending a little more than you’re earning. Wherever you can, try to minimize these expenses until your business proves stable.
If you’re starting to hire other people, use a video-calling platform instead of immediately renting out an office. Take advantage of social media to advertise yourself for free. As you’re looking to become more financially secure, spend money only on what will reward you quickly.
Manage your time well
We only have so much time in a day, so make sure you’re using yours wisely when managing your startup. It will take some time to figure out what is necessary and what isn’t, but every moment counts when it comes to keeping yourself afloat. If you want to give yourself a better shot at success, effectively managing your time will afford you more money-making opportunities.
Track all expenses
This may seem obvious, but it bears repeating. Because you’ll most likely be spending some of your own money when you’re starting out, it’s important to keep a list of everything you are spending on. This is the beginning of managing your cash flow. Once you start keeping track of every expense, you’ll be able to see what are worthwhile investments and which ones you can cut to save yourself some money.
Maintain a personal budget
Instead of only budgeting for your business, creating a personal budget will also be very helpful. It can help you stay on top of unnecessary expenses while you’re just getting started. If you want to put extra money into your business’s budget, use a budget guide to help you understand how much you need to spend each month. But don’t forget about yourself – keep some “fun money” available for trips or items you want to buy.
Keep your credit in good shape
Debt is stressful and will cause you to lose focus on your startup. One of the best things you can do for yourself and your business is to stay out of debt as much as possible. Stick to only buying what you can realistically afford for as long as you need. If you have to place any expenses on a credit card, pay off the charge as soon as you possibly can. Even when you can spend more, it’s still a good idea to maintain good credit health.
Remember to pay yourself
While it might be tempting to infuse everything you’ve earned back into your startup, you still need to take care of yourself. Allocate enough of your earnings to be able to support yourself and anyone else you care for. After all, you’re technically your own employee, and not paying employees is frowned upon in most places. Starting a new business should be exciting and struggling doesn’t need to be part of the equation.
Additionally, put some of the money you earn towards your retirement. Planning early for your retirement is always beneficial, so find the right kind of retirement account for your needs. This will solidify your plans for the future beyond who to pass on your business to.
Supervise your personal finances
Being an entrepreneur is a highly gratifying career. Taking your dreams and making them a reality is something everyone should admire. While creating a startup requires a lot of hard work and determination, you have the ability to make your business flourish.
Managing your personal finances as you’re starting your business is essential for setting yourself up for success. When you maintain your personal money as well as your business accounts, you’re creating an excellent foundation for any situation.