Before you decide to start a business you must educate yourself and learn how finances and business world actually work.
Some people already have experience and knowledge when it comes to finance hacks for small business owners.
They may already have their MBA’s, good business education and experience in some private sector. All of these things are important when starting your own business.
And, although many people say that failure is the best teacher, in business failure can result in a colossal outcome. That is why you should learn your lessons somewhere else.
So, without further ado, let us talk about some finance hacks for small business owners.
1. Start With Understanding Important Business Terms
Your business terminology must be on point. If you do not know the important business terminology, everything you read and hear about managing your finances will sound like an entirely different language.
So it is important to equip yourself with the proper vocabulary necessary for starting your business.
There will be some words that keep coming up over and over again, so do not allow them to confuse you.
Here is what you need to know:
a. Total Revenue (Gross Revenue)
This includes all the money that you received from your customers in return for your services and products.
b. Expenses
Everybody’s least favorite. These are the thing you have to pay from your pocket.
Those include the rent you have to pay, utilities, taxes, interest on the debt, all the materials you need for your products and services, and similar.
c. Net Profit (Bottom Line)
This is all that is left after you pay all the expenses, and deduce that price form the total revenue. The net profit can either be positive or negative.
If it is positive, it means that you are doing a great job. However, if it is negative, that means that your expenses are bigger than your revenue, and you are not earning any money.
d. Cash Flow
Money comes and goes. It comes from sales, products, services, investments, loan proceeds and similar. And, most of the time, as soon as it comes, there are some other expenses you need to cover.
That cash flow is important because it shows the differences in money you had in the beginning compared to the money left.
Bear in mind, that cash flow can easily make or break your business. Having money on hand, and at your disposal is necessary if you want your business to succeed.
e. Break Even Point
This is when everything changes. Break Even Point shows when your company turns from losing money to gaining money.
This is normal for small businesses as you cannot start getting cash from day one. That is why most companies operate at a loss – that is, their expenses are bigger than the total revenue.
Before you decide to start your business, learn the basic business terms.
2. Essential Business Accounting Documents
Important business terms mentioned above are on the important accounting documents. And, there are a lot of them.
Running a startup business requires a lot of paperwork. Besides the regular documents you have to keep and take care of, the special attention must be paid to the following:
a. Balance Sheet
Basically, this is a print of your current business’s financial standing. It contains everything that your company holds, including assets, equity, and liabilities.
Also, the balance sheet is used to calculate the net worth of your business.
b. Income Statement
This is the so-called ‘profit and loss’ statement. It sums up all your revenues and expenses over the past month or a year.
Also, it used for measuring profitability over time, as well as calculating your net profit for a particular year.
c. Cash Flow Statement
It lists all the inflows and outflows of your cash. That is, what you got paid for, and what you used that money for afterward.
Basically, inflow comes from selling your products or services or receiving some kind of payments. And, the outflow comes from all the things you have to pay including rent, utilities, purchasing inventory, paying your employees and other expenses.
d. Revenue Forecast
This a prediction for your upcoming business year. It is a prediction on how much money your company will earn, that is how much will outflow and inflows bring.
This is necessary if you want to know your budget and stay on it. If you know your revenue forecast you will always know whether you can expand, hire a new employee, have a new marketing campaign, or whether you should start thinking about relocating your business locally, in order to find a more suitable location.
Having a successful startup business starts with managing your finances properly.
3. Find Help
First things first, it is advised that every company has some accounting software at their disposal. This is important for managing business and accounting documents.
Especially because that can be an overwhelming process for new business owners who are just starting. Luckily, we live in the 21st century, where computers can save our daily lives.
There are many online accounting software options to choose from. You will be just a few clicks away from all your important documents.
And, although accounting software can do a lot for you and your business, there are still some complicated areas that require professional help.
It is best not to do those intricate things by yourself, and seek a professional accountant. His or her job will be to review your books, search for errors and correct them, help with tax, and give you some recommendations for making financial decisions.
Also, you can ask for a piece of advice from your business attorney, banker, or a fellow business owner.
However, no matter what you decide, and who you hire for help, make sure to always be involved in your startup business finances. Moreover, do not forget to save all the checks and balances in one place.
Having a professional accountant when you are just starting can be a great advantage. So, do not try to cut corners on this one, as it can make or break your company.
4. Get a Business Loan
Well, at some point you are probably going to need some financial help, even if you tried cutting off expenses in your startup business. It is not the end of the world as many companies start like that.
There are many types of business loans depending on how much money you need, when you can repay it, credit scores, annual revenue and a lot more.
And, it all depends on the lender. So, let us mention some of the most used loans for small startup businesses:
a. Term Loan
The most common kind. Everything is agreed in advance, that is, the repayment time, the number of monthly payments and an interest rate are all set.
b. Equipment Financing
Some loans are specifically dedicated to buying equipment for your business. Those are things like computers, machinery, office equipment and similar.
c. Short Term Loans
If you run into trouble, and you need cash immediately, these short term loans can be a lifesaver. Their amount can range between $2,500 to $250,000, and they should be repaid in less than 18 months. What is best about this kind of a loan is that you can get the money you need in just a single day.
5. Prepare For the Worst
When you are your own boss you never know what is going to happen and when. You can make a mistake and your business might be ruined. So, it is best not to quit your current job until your new startup business can replace it completely.
You might get into trouble, and all your sources of income might be eliminated. So, be prepared!
Also, keep reserves. You must have some cash on the side for those rainy days. Always have an emergency savings account.
And, when you notice that your business is on the right path and your incomes are greater, think about investing in something. Even something small can make a difference in case bad things happen.
Anything is certainly better than nothing. Moreover, having business insurance can help you and your company overcome any risk and threat.
6. Pay Yourself
You should not invest every single dollar into your company. Working hard, being dedicated, and investing are all important things when starting a small business company. But you must pay yourself.
We are not talking about a huge salary, of course not in the beginning, but a salary big enough that you can live comfortably.
If you constantly worry about the money, and how you will survive the following month, you will not be able to focus on leading your business. You must eliminate that financial burden, and then you will be extra focused.
Plan your business, but do not forget to take care of yourself as well.
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