Getting a startup profitable is no easy task. Instead of focusing only on the actual product or service that you are selling, you will also have to deal with administrative problems. Managing your startup finances is one of the biggest problems you will face. Here’s everything you need to know about financing for your startup.
Manage Your Finances
Entrepreneurs usually focus on everything except managing their finances. Making a profit is naturally a major concern and is an important reason for starting the business, but often most entrepreneurs fail to take care of their day to day finances. And that’s a recipe for disaster.
Managing your finances should be one of your important tasks because if you don’t you will soon go out of business.
Your Accountant is Important
Though a startup does not always have the cash reserves to invest in an expensive accountant so, in the beginning, you’ll have to manage it yourself. You’ll need to level up your managing skills and after your finances start to grow you can hire a pro who will do the work for you.
Say no to expensive credit
When you launch a startup, you need money. This is the time when banks and credit card companies start sending you leaflets offering you loads of money and all you need to do is fill in a form. At this time it’s easy to fall prey to temptation but you should remember that if you’re relying on credit to get your business off the ground, you’ll likely run out of money before you can reimburse.
Keep Your Expenses Low
Hiring a team of employees or working 18-hour days and hiring freelancers will not meet your expenses. You’ll be tempted to hire people for even a small task but you should be aware of the cash you are spending.
It’s not that you should cut corners at every opportunity but keeping costs low at the beginning is the key to survival. You don’t want to burn through your finances in the first few months so spend money only when you need to and avoid unnecessary costs.
Don’t Merge Personal and Business
People say, don’t mix personal and professional life, and that’s absolutely true. When you launch your startup, you’ll need a commercial bank account. For any business expenses, use this account only. Never be tempted to use your personal bank account to cover any business expenses. Even if it’s a small amount. There are simple reasons for this:
1) You won’t be tempted to make it a regular withdraw.
2) It makes taxes a lot more straightforward.
Know Your Tax Deductions
Tax deductions can seriously lower your expenses. You should know them through and through, or hire an expert who does. You’ll be surprised by the type of things you can include:
- You can deduct electricity, gas, cell phones, internet connection and expenses on inventories. Moreover, you can even claim this stuff if you work out of a home office.
- If you need to go on a business trip, make sure you keep all of the receipts as they are fully tax-deductible.
- Whether you try and get the word out through the Google Ad network, Facebook ads, or traditional mail, the costs are fully deductible.
- The government will pay 50% of your business lunches, as long as the expense can be substantiated.
Pay yourself
Most entrepreneurs won’t give themselves a salary. It is understandable when you’re just starting but the problem with this mindset is that it creates an unsustainable business model and an impracticable financial picture. On the long run, it will never work. You should either pay yourself as your role demands or start a short-term financial plan.
Expect a Rainy Day
You have a fantastic idea and people are buying what you’re selling, but this may not last long. No matter how good you are at your job or how rosy things look, there’s always a hurdle in the road somewhere.
To overcome this hurdle, keep a buffer for the times when cash flow isn’t good. Retain essential employees even if you are going through a rough time and continue your business while you cross this storm. Having a reserve fund will get you out of the tough spots, so make sure you obtain a decent one.
Startups are exciting and give you professional independence but running a business is not a piece of cake. Even if you know everything there is to know about startup finance, it’s not going to be an easy ride so you should always be ready to deal with those challenges. To catch up with your expenses, keep learning about the finance side of things and don’t be afraid to call in the experts when you need to.
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