In the early stages of running a business, it’s important that you have a good financial plan. Having a well-defined financial strategy is very important to ensure that your startup is successful. Unfortunately, many new business owners fail to take the time to plan for their financial future. Even though you’re not familiar with the details of running a business, it’s important to keep in mind that managing your finances is a vital part of building a successful startup. Here are seven steps to ensure that you have the necessary resources to manage your finances.
Start a Business Bank Account
Having a bank account is very important for any startup. It can help you manage your finances and keep track of all of your transactions. There are various types of bank accounts that can be used for a business, such as checking accounts, savings accounts, and cash management accounts.
- Getting your finances organized will help you file your taxes more easily. Having separate bank accounts for both your personal and business expenses will also make it easier to keep track of all of your transactions. If you don’t have these accounts, you might end up owing a lot of money to the government in taxes.
- A bank account for your business can also provide you with some level of legal protection. For instance, if you are sued, a business bank account can help prove that your company is separate from you, which can safeguard your assets.
- Having a bank account for your business can also make you appear more professional. It allows customers and clients to pay for your services instead of making payments to you.
2. Recognize your financial literacy.
Getting the proper tools and resources to manage your business’ finances can take a lot of time, but it’ll also help you save a lot of money and stress. Although it’s not necessary to have a background in finance to manage your business’ finances, it’s important to understand what it means and how it should be handled.
“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.
3. Manage your cash flow.
The money that flows in and out of your business is referred to as cash flow. Having a positive cash flow is important for any company, as it allows you to make more money than you spend. Unfortunately, over 60% of small businesses around the world are struggling with negative cash flow.
One of the most important factors that businesses can consider when it comes to managing their cash flow is creating and sending out invoices. This will allow them to keep track of their expenses and make more informed decisions regarding their 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.
4. Determine your startup’s financial and market logistics.
Once you have a working knowledge of business finances, you have to ask the tough questions specific to your enterprise:
- How much money do I need to start this business?
- How long until my product or service will become profitable?
There are no perfect answers to these questions, but understanding your niche will allow you to make informed decisions and start building a successful business. For instance, service-based businesses tend to take less money to start, while product-based enterprises require a lot of capital.One of the most important factors that entrepreneurs need to consider when it comes to starting a business is their niche. This will help them determine how much money they need to start and how long it should take to make their business profitable.
“New business owners spend way too much money in the startup phase,” Moltz said. It seems logical – the more money you spend getting customers, the more customers you will get. Unfortunately, that is not usually the case. That’s where profitability comes in.
5. Conduct financial forecasts to gauge profitability.
Your future profitability depends on a variety of factors, like how much money you need to start and how you’ll be able to maintain it. Having a good financial forecasting tool can help you determine when you should start to cash-positive.
“A business can take its time becoming profitable for however long you have the cash flow to support it,” Moltz said. However, he added, most small businesses need to achieve profitability in the first year to be sustainable.
One of the most common reasons why businesses over-predict their revenue and under-estimate their expenses is because they don’t have the necessary resources to manage their finances. One of the most important steps that businesses can take to improve their cash flow is to double their expenses in the first six months of the year.
6. Carefully research your funding needs.
While some businesses start out with a small amount of capital, others may turn to external funding to grow their operations. There are a lot of factors to consider when it comes to this type of funding, such as how much money you need, the terms of the loan, and your credit score. Not every type of loan will work for your company.
These are some of the financing options available to small business owners:
- Traditional loans from banks
- Business lines of credit
- Invoice factoring
- Merchant cash advances
- Peer-to-peer lending
7. Utilize experts.
One of the most important factors that you should consider when it comes to financial planning is the expertise of another person. This person can help you manage your finances and ensure that you are getting the most out of your money. Besides financial advisors, other resources such as accountants and bookkeepers can also be utilized.
When it comes to maintaining a successful business, it’s important to maintain a positive attitude. Doing so will allow you to focus on the important things that will help you grow and succeed. Instead of rushing your business’s potential, consider investing in the necessary resources to maintain its financial health.
“A lot of business owners don’t manage their finances because they don’t understand it,” Moltz said. An expert’s help with putting together your financial statements, evaluating your expenses and forecasting your profits can save you a lot of time and money in the long run.
We hope you find this article useful. If you have any questions regarding how to execute a financial management strategy for your EdTech startup, get in contact with our team on our channels.
We wish you all the best.