As an entrepreneur launching a new business, you have a lot on your plate. Between developing products, recruiting talent, marketing, sales and a million other tasks, your own personal finances often take a backseat.
However, managing your finances properly is a crucial aspect of entrepreneurship. It will make or break your business success.
Understanding Cash Flow
When starting and running a business and depending on it for income, you need a clear grasp of the timing and amounts of money flowing in and out. Otherwise forecasting, budgeting, and planning becomes impossible.
Many entrepreneurs are caught off guard by:
- Lengthy sales cycles delaying revenue
- Seasonal trends impacting the business
- Sudden large expenses for equipment, etc
Build a cash flow projection during the planning stages and update it continuously as the business progresses. Track both company finances and personal. Knowing where you stand allows smart decision making. Don’t neglect your own ability to pay bills and put food on the table!
Funding the Early Days
The infancy stage of launching a business is a particularly vulnerable time financially. Revenues are non-existent while costs accumulate to build infrastructure, develop offerings, and attract customers.
Most entrepreneurs need outside funding to bridge the gap through these early days. Options include:
- Personal savings
- Taking on other part-time work initially
- Borrowing from friends and family
- Crowdfunding platforms
- Small business loans and credit lines
Avoid racking up credit card debt which can spiral out of control with high interest rates! Once you understand how much runway is needed before profitability, you can determine the best funding mix.
Maintaining Healthy Spending Habits
Entrepreneurship brings financial fragility and uncertainty. One month sales skyrocket and the next they crater unexpectedly.
COO Dispatch recommends these personal finance habits to prepare for the volatility:
- Build up a solid emergency fund covering 6 months of living expenses
- Automate deposits into a savings account for goals and the unexpected
- Hold off on major purchases if possible in the early years
- Stick to a reasonable budget aligned with your business reality
- Review income and outflows frequently rather than ignoring money matters
Avoid “boom and bust” splurges after a windfall sales month! Consistency and discipline are key even during feast times.
Separating Business and Personal
As an entrepreneur your business and personal finances will inevitably mix, especially pre-funding rounds. However, separating the two as much as possible from the outset helps avoid many headaches:
- Open dedicated bank accounts under the business name and use for all revenue and expenses
- Get a business credit card with higher limits to handle larger purchases
- Be meticulous about receipts and categorization in bookkeeping
- Only take a reasonable salary, don’t over distribute profits
Having distinct records clarifies taxes, accounting, and strategic decision making. Plus, should you want to attract investors down the road, untangling co-mingling is extremely difficult!
Embarking on the journey of entrepreneurship demands resilience, sacrifice, and scrappiness across all aspects of operations. Managing finances may not be glamorous, but remains utterly vital for stability and survival in those make-or-break early years. Stay disciplined, stick to budgets, and don’t let the allure of potential riches undermine smart money decisions along the way.
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