Three Keys to Managing Your Finances as a New Business OwnerEditorial Team
If you’re considering starting a business, you’re probably really good at something. Maybe you make the best cupcakes, the most beautiful websites or give the best haircuts.
Whatever it is – you have a skill or talent that you’ve carefully crafted over time and a tremendous amount of passion. For new and prospective entrepreneurs, however, skill and talent won’t be enough.
We all know how important it is for consumers to gain greater financial knowledge and confidence.
But the truth is that financial literacy is also a critical component to small business success. Often times, however, this can be stressful and overwhelming for entrepreneurs.
The number one thing I recommend to new business owners is to immediately get a foothold in your finances. It’s the primary thing that can set a new business up for success.
We’re currently experiencing unprecedented numbers of people starting businesses: in fact, Intuit QuickBooks projects 17 million new small businesses could be started in 2022.
If you’re among those would-be entrepreneurs, here are three tips to improve your financial literacy and start your business off on the right foot.
Cash (Flow) is King
To be financially literate as a business owner, you need to know and understand how money is coming in and going out. Getting a handle on your cash flow can be difficult – especially when you’re just starting and there are so many different moving pieces.
My advice to new entrepreneurs: use technology to your advantage!
Rather than trying to manually keep track of expenses and revenue by hand or in a spreadsheet – or even worse, “winging it” without any formal system in place – use a software like QuickBooks that can give you a holistic look at where you stand financially.
Aside from ensuring you’re not overextending yourself, insights on cash flow, your money in and money out and other financial trends can help you make important business decisions – like if you’re able to invest in new equipment, if you should curtail spending and more.
Expect the Unexpected
As we’ve all learned the past couple of years, no matter how good you are at planning, unforeseen circumstances have a way of popping up and derailing carefully laid plans.
In business, this is also true of expenses. Some unexpected costs may be the result of an unfortunate incident – like a security breach or natural disaster – or things you didn’t account for such as the cost of insurance or taxes.
As a business owner starting out, it’s important to set a budget for the fixed expenses you know – like rent, payroll, supplies and materials – and also set aside some money for the unexpected.
Building up a small cash buffer that you can tap into when something unexpected comes up is a best practice I recommend to all businesses.
It is not always possible, but if you can, create an emergency fund to cover at least a month of expenses. This way, you will be ready regardless of what the world will inevitably throw at you.
This is especially important right now with inflation at a 40-year high. A recent study from QuickBooks found virtually all (99%) small businesses are worried about inflation.
Businesses that set aside some money for a “rainy day” will be in a better position to weather the financial storms of their individual business and the overall economy, as well as surprise costs that always tend to come up.
Consistency is Key
As with anything, consistency goes a long way when it comes to managing and understanding your business finances. On at least a weekly basis, I recommend you sit down and look at your books.
While initially this may just be you and your computer, over time it may include others – like an office manager, bookkeeper or CFO. During this weekly check in, review your expenses, your sales, and your profitability.
Ask yourself how this stacks up to the previous month – or even the previous week! Are there any trends you’re seeing in your sales that can inform your strategy? Are there seasonal impacts you should be mindful of?
Having a consistent touch point will help you identify challenges and opportunities and become more familiar and confident in your financial operations.
Starting a small business can be exhilarating yet overwhelming. This is especially true when it comes to managing finances – a first for so many entrepreneurs.
By getting a handle on your cash flow in and out, preparing for the unexpected, and creating a consistent practice of checking in on your finances, you will be able to set yourself – and your upstart company – up for success.
Authored by – Karen Barson, VP, Customer Segment and Product Leader at Intuit QuickBooks