One of the key reasons why many start-ups fail is running out of cash. A business comes with many expenses, some of which are unforeseen and you have to be prepared to handle them all. Proper financial management is also essential for the success of your business. This article highlights some tips you can follow to financially prepare when starting a business to avoid failure or financial strain.
Estimate Start-up Costs Well
The cost of starting every business is different. Your start-up costs will depend on the size of the business, nature of the products and services, location, and workforce, among many others. To avoid running out of money even before the business opens, estimate the costs well and give some allowance when making a budget.
Consider the Cash Flow
In addition to the initial cost of opening a business, you also need to think about cash flow. Most businesses take time to make profits and thus you have to ensure you have enough money to cover expenses before your first profits. Lack of money to pay for the day to day expenses can cause you to close down your business. Therefore, ensure you have a plan to cover your expenses for a few months or even a year.
Also, since you may not pay yourself for a few months, you need to plan how you will cover your personal expenses. Paying yourself before the business becomes profitable will only increase your operating expenses. The best approach is to set aside enough money in your personal account before opening the business.
Build Your Credit Score
Make a habit of paying your bills and credit cards on time to avoid lowering your credit score. A good credit score is essential when applying for loans. There are many reasons to get a loan, including a business venture. You can apply for a loan when you don’t have enough money to start your business or when your cash flow goes down. A good credit score will boost your chances of getting approval for different types of loans you may require for your new business.
Have An Emergency Fund
Just like you have an emergency fund for personal use, you should have one for your business too. When you have some money set aside for emergencies, it will be easier to get your business up and running after a disaster. Also, an emergency fund will allow you to take advantage of profitable opportunities as soon as they arise. Finally, you can use your fund to keep things going when the cash flow is low.
Maintain Proper Records and Pay Taxes on Time
Before you open your business, invest in the right software for recording financial transactions. Proper record keeping will keep you from losing money and it will also help in evaluating profitability. Also, familiarise yourself with taxation laws to ensure taxes are submitted on time.
Proper financial planning will boost your chances of survival in the short and long term. If you are having a hard time figuring out how to manage your finances, consider hiring a financial advisor.