All aspiring entrepreneurs all have one major need in common: efficient money management. Whether it’s your first business or one of many that you’re looking to launch, the key to your success weighs heavily on your ability to create a budget, pay bills and handle cash flow. Not so good with numbers? Take note of the following tips, which can ease your financial anxieties and lead to a solid business plan for your fledgling startup.
Ask for Assistance
Entrepreneurs typically have daily to-do lists a mile long. Luckily there are many powerful tools out there that can assist with your money management. Online programs such as Mint, FreshBooks, QuickBooks or Expensify can help you accomplish such tasks as writing invoices, drafting budgets and breaking down taxes. It’s also a good idea to seek advice from a trusted financial professional if you encounter any accounting questions or obstacles.
Instead of putting all your eggs in one basket with your new business, consider investing some funds in a side venture and/or a variety of stocks. By doing this, you’ll not only have the potential to increase growth, but you’ll also have a cushion of support during rocky times. Diversifying could also provide you with the revenue that could help introduce new products or services.
Establish an Emergency Fund
One of the riskiest aspects of being a new business owner is the fact you don’t have a regular salary. An added negative factor is the possibility you may not be bringing in any revenue for an extended period of time.
That’s why it’s vital to be completely debt free and also have a well-stocked emergency fund to cover your basic expenses during your company’s humble beginnings. Business owners get into serious trouble when bills are due and they are unable to pay.
Some financial experts suggest reserving five percent of your paycheck in an easily accessible fund to assist with one year of expenses. It’s also a good idea to keep a spreadsheet of your monthly spending habits to help you decide how much to keep in your emergency fund, and to determine where you can cut back on your expenses.
Familiarize Yourself With Financial Statements
As a business owner, you should give your financial statements much more than a passing glance. By breaking it down into sections, you’ll better understand where your company’s money is coming from, where it went and where it currently stands. Understanding exactly where you are financially can help you make much more informed decisions about your company’s future.
There are four parts to a financial statement, according to SEC.gov:
- Balance Sheets: Provides information regarding company's assets, liabilities and shareholders' equity.
- Income Statements: Reveals much revenue has been during a certain period of time, which is usually during one year.
- Cash Flow Statements: Analyzes operating activities, investing activities, and financing activities.
- Statements of Shareholder's Equity
If you are unclear about what any of the following mean, don’t hesitate to contact a financial professional for advice (see first tip).
Decide on Your Business Incorporation
Two of the most popular choices are the limited liability company (LLC) and the S Corporation. But how do you decide which one is best for your particular company? Understanding what each one means will help you choose.
An LLC “never pays taxes; instead, the owner's share of business income, deductions, credits and other tax items pass through and are reported on the owner's tax return,” according to SBA.gov. LLCs are also subject to self-employment taxes on their share of net earnings from the business.
Business owners that establish a S Corporation receive a salary, which means they don’t have to pay self-employment taxes. While the amount you make is always the same, regardless of the state of your company, if you choose this option you know you won’t be spending an excessive amount for income taxes.
Since your decision about your company’s corporation will have such a major impact on how you manage your finances since it determines how you pay for income taxes, Social Security and Medicare taxes, don’t hesitate to garner the advice of a professional.