Simply a good idea is not sufficient to start and manage a small business. In this highly dynamic environment, it is crucial that you learn how to survive amongst your industry competition. You should first be commended for executing your business idea and starting your own company however, statistics show that more than 95% of such startups fail within the first five years. There could be many reasons for this and mismanagement of finances is definitely one of them. Every business needs a financial structure that would keep your business credible and attractive for investors. As an entrepreneur, it is vital that you possess good money management skills so here are some tips for managing small business finances.
You may not have ever handled such a big amount of finances all at once previously and hence It could overwhelm you. You first need to educate yourself on some of the basic aspects of finance such as maintaining accounting records, reading financial statements, managing your expenses, collecting receivable funds, managing cash flows etc. Your basic statements are income statement, balance sheet, cash flow statement and statement of shareholders equity. Learning what each statement contains is vital in preparing them and analyzing them to make future financial plans. Also educate yourself on the necessary laws such as taxation that directly relate to your finances. That could be serious consequences if you do not file cheap tax return on time.
Separate personal and business finances
The entity concept is vital when doing business. You need to consider yourself and your business as two separate entities. Many businesses fail since the owner haphazardly spends business money considering it as his own. You need to get a separate business credit card, file separate taxes on your income and the business, record any money you took from the business for your personal expenses etc. Late tax returns will be able to help you with filing two separate taxes so that you will have the least legal problems.
Small businesses need to manage the costs since revenues are low during the first few years of operation. You will come across two types of costs which are fixed and variable. Your fixed costs will be high during the beginning but as your sales grow, you’ll be able to cover them up with higher income. Your variable costs depend on the number of units you produce. Go for cheaper options whenever possible that would not harm the quality of your products. For example, work with free open source software rather than buying costly branded software.