With more professionals dreaming of launching their own start-up than ever before, the ticket to success may not be in having the next killer app or disruptive concept, but in having stronger financial management than the next guy in line. So, you need to know some money management secrets if you want to succeed.
How to handle the finances should be one of the first questions that come up when you start thinking about launching a venture. You will have big problems and will need to learn many money management secrets if you want to succeed.
How your business will earn money? Will it be enough money? What will it cost? Where will you get start-up capital? How will you keep track of the books without paying more in fees than you’re bringing in?
Even the smallest of grassroots efforts take some funding, even if it’s just to pay for a monthly internet package. And any funds related to a business venture, whether expenditures or – here’s hoping – income, need to be accounted for come tax time. Use these three laws of entrepreneurial money management to come out on top.
1. Money Management: Don’t spend more than you can make
You’ve heard the maxim “you’ve got to spend money to make money.” Don’t take it to heart. When it comes to launching or building a business, there are unavoidable expenses, but spending on credit is likely to sink your venture before it can get a foothold, and the last thing you need is a mountain of debt to try to struggle out from under. We’ve all heard of at least one promising start-up that overspent its way to an early grave; after all, it happened en masse during the dot-com bust.
Bootstrap your way to success by reinvesting profits into the venture and spending in line with what you make. And focus on making money, whether that’s cutting a product that’s underperforming, pivoting to a more in-demand service, or simply making shrewder financial moves. Make the smart choice at every step, including your banking. Choose checking and savings accounts without fees and with favorable interest rates so your money can be making you more money. Gobankingrates.com can help you compare savings accounts.
2. Money Management: Write everything down
It’s up to you how you keep track: a cascading avalanche of paper receipts and invoices, an ever-lengthening spreadsheet or a shiny budgeting app. The important thing to keep in mind is that the tax authorities have zero sense of humor when it comes to lost records. Missing paper trails look suspiciously like cooked books, and you do not want to waste time being audited or paying fines that you should never have needed to pay.
Decide on a system for keeping track, preferably before Day 1, and stick to it. Depending on how you set up your finances, this may be pretty painless. Look for banking service providers with built-in budgeting and expense tracking tools, and consider consolidating accounts, so everything’s in one place. It’ll save you money on finance support before you’re big enough to need your first bookkeeper, and put you in good shape for year-end.
Automation is your friend, so unless you’re a devoted Luddite, it’s worth looking into how much bookkeeping you can set and forget. Do invest in an experienced business tax accountant at least annually, though.
3. Money Management: Plan for success; save for a disaster
That sounds like two separate things. It isn’t. While it’s important to reinvest funds into your venture to keep it growing, it’s critical to have as much of a buffer for the future as you can. Markets can shift. Surprises crop up. Saving regularly is like funding your future self. It gives you the flexibility to jump on new opportunities, brings on superstars, launches a new line, or to weather a storm that suddenly presents itself.
While you’re automating your finances, make a point of building in a plan to save. It might be a monthly withdrawal of a set sum into a savings account or a percentage off the top. Ideally, your savings accounts will offer favorable interest rates so they can be making you more all the time. Also set a realistic budget, such as zero-sum budgeting, to help you fit expenses within income and savings goals.
Your entrepreneurial plan for financial success is to reinvest in the venture, save a solid buffer, and be positioned to survive any storm with flexibility and freedom. Avoid overspending, so your future doesn’t suffer from today’s excesses, and keep careful documentation on income and expenses to avoid any tax-time misery. Excellent money management may not be glamorous, but it will be the difference between your successful venture and other excellent business ideas that crash after takeoff.