Being an entrepreneur and starting your own business from the ground up can be one of the greatest adventures of your life. However, it can also be the biggest nightmare if you don’t learn early on how to manage your finances on both a personal and business level. One move in the wrong direction could stifle the growth of your company, and so it is imperative that you learn how to manage your financial affairs. Here are a few bits of advice from entrepreneurs who have built successful concerns.
The Importance of Planning for the Proverbial Rainy Day
You’ve heard the expression, “It never rains but it pours.” And, so it is with businesses large and small. When business is good, it’s very good but when it’s bad, you can quickly go under unless you’ve planned ahead. When one financial woe besets you, it seems to have a snowball effect, leading to financial problems down the line from supplier accounts to payroll. Always set aside money systematically and regularly over time so that you are prepared for a minor setback should it occur. Don’t let matters get out of hand. In other words, don’t fall into the “Robbing Peter to pay Paul” trap! Cash management now prepares you for that rainy day.
Never Intermingle Business and Personal Finances
Although you may be tempted to move funds around where they are needed most, this can be one of the biggest mistakes you’ll ever make from both a personal as well as a business perspective. Consider the fact that one day you may accrue more debt in your business than you can pay at the moment. Don’t let a creditor bankrupt you personally to demand payment of those debts. By keeping business and personal transactions separate you can be assured that your personal finances are safe.
That creditor can only go after the business, not your home or personal vehicle. Also, in most countries it is against the law to intermingle funds. Audit, tax and consulting firm, RSM often finds that the ultimate reason for a company’s financial distress is because there isn’t a clean line of demarcation between business and personal finances. Sometimes they become so murky that there is no way to trace back what belongs to the company and what belongs to the business owner.
Income vs. Expenses
Finally, one key piece of advice that should seem logical but is often ignored is on the importance of never spending more than you are bringing in. If you begin a pattern of thinking business will pick up and you can repay debts, you will soon learn that sometimes it just doesn’t happen that way. There is nothing wrong with taking an occasional business loan such as through invoice factoring if your debtors aren’t paying timely, but there is something wrong with draining the coffers to meet expenses even though you know that soon you will reach a place where nothing will get paid. There’s nothing left to give!
Tracking Your Success
Your company’s level of success, their profitability, is based on income vs. expenses. You need to bring more in than you pay out, and that margin between the two will be your profit. If you aren’t making a profit, it’s time to seek some solid advice such as that offered by the consultants of RSM who are operating out of offices in 120 countries around the globe. An audit can help you track a money trail to determine where you are spending too much or too little. In other words, an audit is the easiest way to track your success.
Understanding tax incentives and breaks can also help grow your bottom line and if you are unsure how to move forward into the future with the current state of your finances, they can offer some much needed advice. The easy way to manage your finances? Hire a global consultancy and you’ll never have a problem again!