Many people share the dream of entrepreneurship, but only a dedicated few are able to realize it. It mostly takes ingenuity, heaps of good luck, business sense, and strong financial planning. Before you can get your vision off the ground, start with the financials so you can build a strong foundation and get your business up and generating revenues by the end of December. Follow these financial tips to put yourself on the path to business success:
1. Create a Budget
Smart financial management of any kind starts with a strict monthly budget. Calculate your necessary expenses and subtract them from your income to find out how much you have left for savings and emergencies. Use this same strategy to plan a budget for the type of business you want to open. Making projections based on current markets will help you figure out the amount you’ll need to get started. Every business blog out there will tell you not to mix your personal finances with your business ones, but having security savings to live on while you get your business off the ground is a great first step, and you need to know how to make that cushion happen.
2. Pay Off Outstanding Debts
While working out your business budget, note which expenses represent payments on credit cards, loans, and other forms of debt: this will make up your debt-to-income ratio, which lenders and investors will take into account when they consider supporting your startup business. Make a plan to pay off these debts as soon as possible, or to lower them as much as possible. Starting with a clean slate when you establish your business makes it easier to obtain financing, reduces the stress of juggling multiple monthly fees, lowers your debt-to-income ratio and improves your credit score.
3. Start a Savings Plan
You need savings to support yourself during the early stages of establishing and running your business, based on the personal budget you calculated. Figure out how much you can set aside each month while still meeting expenses, and set up a system to have it automatically deposited into a savings account. Work with your bank to set up an account with favorable returns so that every deposit earns interest. You can use this as seed money for the business, or simply to cover your personal expenses until you start seeing profits from your company.
4. Minimize Expenses and Maximize Income
In order to make your savings plan as successful as possible, it can help to cut back on extras. The more you put away, the more comfortable you'll be when the business hits bumps or your funding takes longer to come through than expected. Profits will come, but it can take time and you'll want your focus to be on the business growth, not the bank account. Your budget projections should show a reasonable prediction of how much money your dream business requires for startup. In addition to saving more, increasing your income ahead of time will help you get the funds you need. You may be able to bring in more money by doing creative freelance work or consulting in your area of expertise. Make it your goal to save for your business, and use this as your motivation to put in the extra work necessary to amend your budget.
5. Network with Everyone
There's no way to know where that great partnership will come from, or your next biggest contract, customer or client. Your own word of mouth can spread, especially with social media, so shout it loud. Let everyone know that you're starting a business and you'd love to hear from them. Other business owners are also a great resource, and they can clue you in to tips and tricks for where to find the best lenders, what do to, where not to spend money, and what they'd do differently if they started over again.
6. Monitor Business Spending and Savings
Once you've got a plan in action, use a notebook, spreadsheet, or app to record every cent you earn and spend for your business. This financial tip will help you visualize where your money goes each month and whether or not you’re on track with the growth you expect for 2020. It can also help you if you plan to pitch to investors or pre-qualify for a business loan, since banks will want to see your earning and spending accounts.
7. Educate Yourself About Business Finances
Talk with an advisor or confer with knowledgeable friends and colleagues to get a better grasp of the financial terms and processes you need to understand to successfully establish a company in your field this year. Make sure you have a solid understanding of various financial areas and what the pitfalls and perks might be of each. If you're well versed, it will be more difficult to lose track of where your business' money is going and easier to get funding in the future.
8. Make Business Goals
Once you have the hang of managing personal finances and saving up a cushion, shift your focus to business matters. Make a list of goals, starting with what you want your business to be, your vision for the future, and the short- and long-term milestones you must hit to achieve the vision. Refer to your initial budget projections, and begin to calculate how much funding each goal will require.
9. Find the Resources You Need
Figure out what furnishings, equipment, and office supplies you’ll need, and seek out ways to get good quality products at a discount. Scour internet classifieds, visit local consignment or antique shops, and keep an eye out for sales on electronics. Negotiate with vendors from whom you’ll be obtaining products and inventory on a regular basis to secure favorable prices. These practices will keep start up costs low and ensure you have more cash on hand to support operations as your business grows.
10. Research Financing Options
Putting your finances in order before starting your dream business paves the way to obtaining additional funding. Nearly every business requires a loan at some point, so take the time to look at multiple types of lenders before you find yourself in need of more money. Check out banks, credit unions, SBA loans, and alternative lenders to determine which options fit your business model and your budget. When you know where to go for help, you’ll have the confidence to take the risks associated with becoming a business owner.
Follow these tips for opening a business and you’ll be well on your way to becoming your own boss by next year. Are you ready to get started on the road to opening your dream business? The only way to know is to jump in and make it happen. Read more about putting your finances in order, or read reviews of the best places to get a small business loan.