Building a business from the ground up is by no means an easy task, but it is one of the most fulfilling career choices you may ever make. Nearly 16% of Americans are entrepreneurs, and many will have tried their luck at several businesses before finding their niche. Entrepreneurship is tricky, particularly when attempting to make a start-up stand on its own two feet, and evolve into a full-fledged market player and profitable business.
However, it is achievable with some hard work, discipline, and financial insight. When it comes to managing a start-up, accounting and finances are the blood flow that will keep your enterprise alive. Therefore, it is essential that you monitor it keenly and conduct the appropriate research and planning. Here are seven crucial tips you need to keep in mind.
1. You Will Need To Keep Your Eye On The Cash Flow
Running out of money is one of the most common causes of start-ups going under within the first year. A common challenge of young entrepreneurs is sticking to a defined budget, because it can be tempting to come up with new ideas of generating money, or give in to unnecessary impulse expenditure, such as new stock purchases.
If you want to remain in control of your finances, you will need to make sure that every single dollar is employed the way you had planned and accounted for, and can track whether the money coming in matches your predictions. To facilitate working in accordance with your budget, assign funds to spend on miscellaneous or unexpected expenses.
2. Keeping A Consistent Gross Margin Across Your Products And Services
As a start-up, the quality of the services or products you provide must be consistent. This means that you must have the same vested interest in the development, provision, and distribution of each product, to ensure you remain as motivated and focused in the stocking of each item you offer, or the rendering of each service.
A standard gross margin for businesses to operate with is 25%. This means that the percentage of sales revenue such a business gets to keep, after deducting costs and expenses, averages at 25%. Therefore, such a business would need to stay clear from the provision of products or services with less than a 25% margin and keep an eye on those that may maximize this margin.
3. Accounting Is Key
Even if you can afford an in-house bookkeeper, you will want to invest in an expense-tracking software. The software will allow you to stay on top of all your spending, which can easily spin out of control. Not only will the software make your financial planning easier, but it will also make it easier to pay your taxes and obtain crucial deductions.
4. Start-ups Require Minimized Fixed Costs
Fixed costs are a silent killer for many start-ups. At the beginning of your business journey, obtaining financing may be challenging; therefore, you will want to limit your expenses. Fixed expenses are completely inflexible; therefore, they will loom over your bottom line regardless of how well a business is going. Costs like rent, salaries, and catering can easily exceed your initial sales return, which can scare off investors and sink your business.
Therefore, you’ll want to employ a spend as you grow strategy, where you minimize rent and the number of people on your payroll at the beginning. As your finances increase, you’ll be able to consult an employment law firm to plan out your workforce expenditure. There’s fulfillment to growing from a small home office to headquarters in a city center; therefore, you shouldn’t hesitate to start your journey in more modern means if it maximizes your margin.
5. Prepare For A Storm
A smart entrepreneur is a real entrepreneur. This means that while you’re encouraged to remain optimistic, you will also need to anticipate the worst. Upsets in global markets, local economies, or even your personal life, may shake things up at any time. Therefore, you will need business savings account to act as an umbrella sheltering your operations in case of an inevitable rainy day. In the early days of your journey, you will want to place as much of your profits as possible in a rainy-day fund.
6. Place A Financial Value On All Your Time
The core of entrepreneurship is knowing that any skill, from decision-making to applied crafts, has a monetary worth. Your time has value; therefore, you should charge accordingly. When providing add-on services such as interviews, guidance, or digital marketing features, you should request for payment, which can be added to your end of year profit. This allows you to expand your revenue stream and will motivate you to apply every available minute of your day you are not explicitly paid for to grow your business.
7. Acquire Assets With Capital Expenditure
Your capital serves to equip your business. Therefore, every growth in your capital should be matched with a solid (reliable and researched) investment in assets such as technological equipment, properties, or other acquisitions. The goal is to build a portfolio that is appealing to potential investors and contains components that may gain in value over time. Ideally, these assets should be easy to flip to generate fast money, for instance, in case of liquidity problems.