In the beginning stages of managing your startup, the nitty-gritty of finances might be the last thing you want to think about, but letting financial planning fall by the wayside is a troubling habit for new business owners.
The pressures of success and profitability can weigh down a new business. But no matter your level of familiarity with business finances, you should keep certain key questions and resources in mind. Here are seven steps to take for the successful management of your startup’s financial health.
- Open a business bank account.
A business bank account is one of the most important pieces of getting your startup’s finances in order. Whether you open a checking account, cash management account, or savings account, opening a business bank account is a wise move for these reasons:
It prepares you for tax season. Keeping your business and personal expenses separate will make it easier to file taxes. If you skip this step, come tax season, you might have a hard time untangling your business and personal expenses from each other. This can result in you losing out on deductions or cause a logistical nightmare later.
It offers legal protection. A business bank account can offer you limited personal liability protection depending on your business’s legal structure. If your business gets sued, for example, a business bank account may help prove that your business is a separate entity from you, which can protect your personal assets.
It makes you appear more professional. A business bank account allows clients and customers to pay your business rather than making payments to you personally. This lends your venture an air of professionalism.
Key takeaway: A business bank account is key, as it separates your personal and business finances.
- Recognize your financial literacy.
Gathering the proper tools and educational resources to understand and manage your business’s finances takes time, but it’ll save you a lot of stress and money. Don’t be afraid to admit when you don’t understand something.
“A very low percentage of new business owners actually go over every number in their finances every month, and even fewer actually understand all the numbers on the page,” said Barry Moltz, financial advisor, author and public speaker on small business management.
Key takeaway: You don’t need to be a complete expert on business finances, but you should understand what everything means and how it should be tracked and managed.
- Manage your cash flow.
Cash flow is the money that moves in and out of your business. When you make more money than you spend, you have a positive cash flow. With 61% of small businesses struggling with cash flow globally, you need to pay close attention to yours. These are a few ways to avoid negative cash flow:
- Send invoices as soon as possible.
- Closely monitor your debt and savings.
- Borrow money before you need it.
- Evaluate your business operations to see where you could cut expenses.
- Adjust your inventory for cost efficiency.
Manage your business’s cash flow by sending out invoices quickly, cutting costs and debt where you can, and adjusting inventory when necessary.