When it comes to starting your own business, the future can seem very bright. As you keep an optimistic eye toward what lies ahead there is one component you don't want to skim over: your budget. Managing money can be tricky, especially if you're not financially conscious in your personal life, but it’s also vital to the future of your business.
Poor financial planning is one of the main reasons startup businesses fail. To avoid this fate, spend some time developing plans for both the business, and for yourself. To get your business started in the right direction, a few considerations:
1. Don't Underestimate Your Expenses
If at all possible, do not “guesstimate” expenses. While this might take some extra time on your part, having an accurate estimate will help you in the long run. Once you've thought through all of the usual expenses, like product costs or payroll, walk through a typical day and see if there is anything missing. Some commonly missed expenses include gas, insurance, and postage.
It’s also important to remember that you will likely face unexpected costs during the course of your business’ lifecycle. When creating your plan, build in a buffer so that surprise costs won’t cause financial hardship.
2. Manage Income
It’s more than likely that in the beginning, your new business will not be taking in a steady income. Your cash flow will probably be sporadic and vary from month–to-month. If this is the case, your best course of action is to average your monthly income. During months that you earn more than average, put the extra funds into a savings account. This will come in handy when you have a month that is not as fruitful and you need to supplement the income.
3. Try to Avoid Credit Cards
While credit cards can be a tempting crutch to fall back on, there are other ways to pay for business expenses. One downside to credit cards is that it’s easy to fall into a downward spiral; charging without thinking of the financial consequences. In the long-run, they also tend to be more expensive than the alternatives. If you still think you need a credit card for expenses, get one specifically for the business and only use it for business expenses – don’t intermix with personal use.
If you need money for your start-up, another option to consider is a small business loan. Many small business loans offer greater flexibility than that provided by credit cards.
4. Keep up With Your Taxes throughout the Year
Business taxes are much more complex than personal taxes. The deadlines, deductions and documentation are tricky, especially if you're paying yourself through the business. The last thing you want come tax time is a big surprise.
To avoid under-withholding penalties, you may want to make it a regular habit to pay your quarterly tax payments. If you’re not confident with your ability to stay up-to-date on business tax developments or you simply don’t have the time, seek the assistance of an accountant so that you don’t have to undergo the costly process of remedying incorrect tax filings.
5. Make Sure You Keep Accurate Records
Keeping accurate records can be tricky, so you'll want to create an organizational system that works for you. If you're invoicing customers, keep track of what is paid and what is outstanding at all times. You can do this on your own, or you can invest in a software program that keeps records for you.
6. Ask for Help When You Need It
Being self-employed doesn't mean you have to be a jack–of-all-trades. Facing legal matters? Speak to a lawyer. Need tax help? Consult with an accountant. Reaching out for help isn’t a sign of weakness when it means furthering your business. As I like to say, you are not expected to know everything, just how to handle everything. And sometimes that means passing it on to another professional.