Entrepreneurship is not for the faint-of-heart. Being a successful entrepreneur requires a combination of several talents and qualities. One of the most important abilities needed to become a successful business owner refers to managing money. After all, you do want to have your finances in order at all times. Without money, there would be no business to run!
A lot of new entrepreneurs equate money-management with tracking business expenses. However, there is also the element of managing personal finances. Taking care of both these aspects can be great for your business’s financial health, plus it can also help improve your credit score.
However, new business owners can put a full stop in front of their entrepreneurial ambitions by either placing their personal finances in the same bracket as their business resources, or handling their personal finances quite differently as compared to company money. This does mean that young entrepreneurs do not know how to manage money. In fact, in modern times, several young people have become millionaires, thanks to their path-breaking business ideas.
Even if you aren’t dreaming of making millions right away and just want your venture to take off for now, you’re probably still going to face the same money-management challenges all newbie young entrepreneurs face. Mentioned ahead are a few ways to steer clear of them.
1. Set a Budget, Stick to It
One of the first things you need to understand is that there is a difference between what you need and what you want. Apply this to your finances as well. As a young entrepreneur, chances are that you have limited resources and lots of ground to cover within your means. This is where having a realistic budget can be helpful.
It goes without saying that your budget should focus on covering your needs before your wants. This does not mean that once that’s achieved, you can spend as you like. In fact, you should just the opposite, i.e. save for specific things that you’re going to need to develop your business further.
2. Know How to Decode Financial Statements
Do you know how to read financial statements? If not, you better do something about it. Your business’s financial statement is an indicator of the health of your venture. Understanding it is, therefore, crucial to accurately interpret the numbers.
As an entrepreneur, you should be adept at reading and decoding the real meaning and implications of your company’s financial data on your personal finance. Don’t worry, this not too complex, but only requires the understanding of basic mathematical concepts.
3. Save Receipts
Whenever you incur a business expense, do save the receipt. Doing so can be highly beneficial when calculating your taxes, as you will have the opportunity to write off certain expenses.
Many entrepreneurs take this aspect for granted, as a result of which they’re unable to tell where their money is going. It is, therefore, recommended to save the receipts and record business expenses in an organized manner to easily refer to them when needed.
4. File Your Taxes
Business owners get so tied up in managing company affairs that, often, they miss paying taxes. Remember, not paying your taxes is a federal crime, and you don’t want to end up paying heavy penalties or going to jail for something that could have been easily avoided.
If you do not have the time to file your taxes, hire an expert who can do so on your behalf. This will not only keep you out of unnecessary trouble, but also save you plenty of money and keep your finances sorted.
While no entrepreneur wants their business to fail, one cannot deny that there is a fair chance of that happening. Are you prepared to deal with such as situation?
You can greatly reduce the effect of a failure by diversifying and placing your funds into another side business, alternative investments, or simply setting aside some contingency money. This money can act as a cushion, should you need to bow out or pivot another business.
6. Save for Times of Need
Ever heard about saving for a rainy day? That’s exactly what I’m referring to. For a lot of businesses, especially seasonal ones, income generation can be irregular. It is, therefore, crucial to budget your personal finances in keeping with this, so that you have enough savings to draw from in the lean months.
You should have sufficient savings to cover essential expenses such as those related to housing, utilities, insurance, and food. Do factor in these inevitable expenses and put aside enough money to last you at least a couple months.
7. Spend Less, Save More
In most cases, when income rises, so do expenses. This is the reason that a few months after receiving a raise, it feels just as tight financially as it did before the raise. It is, therefore, prudent to always keep your expenses in check and make sure that they are well below the savings mark.
8. Separate Them
Last but not least, never make the mistake of mixing your business and personal finances. Keep them separate at all times. Make all your business expenses using company money, and ensure that you’re paying yourself a salary from your business finances. Use your salary for personal expenses. Mixing them up will only spell doom for your finances in the long term.
Youth is the best time of our lives, but it means different things to different people. For some, it is a time to take steps towards making their dreams a reality. More often than not, these people go on to become young entrepreneurs, replete with ideas, vitality and motivation. All they need is the resources to make things happen. If you’re inclined towards entrepreneurship, you may want to think about giving wings to your dreams while you’re young and energetic. With the help of the above pointers, you will slowly but surely master the art of managing and earning more money.