How Successful Entrepreneurs Manage Their Money
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To ensure the success and longevity of their business venture, entrepreneurs should learn fundamentals about how to properly manage their money. Studies show that only half of small businesses reach five years old, as most new business owners struggle with staying on top of their funds. This article on the many reasons why startups fail notes that financial issues such as misusing capital, premature expansion, and lack of a solid plan sink good organizations and budding businesses.
If you’re a budding entrepreneur and want to learn some tips on how to manage your money to help your business succeed, we’ve listed some of the top money management tips to help you out.
Set Achievable Goals
In order to help you stay focused and have a clear path towards success, you should set clear financial goals for your business. By doing this, it gives you clear guidelines on what you need to do to ensure your business’ survival and growth.
One key financial goal that every business should have is to generate bigger profits and sustain them. However, it’s important to be specific with the goals you set and base them on your personal priorities as a business owner. For instance, you can set “eliminating debt” as one of your primary goals if you’ve taken out a loan to start your business. There’s more to having a business than just increasing your profits, so be sure to set achievable financial goals that aim to improve other important aspects of your business.
Learn How to Budget
Of course, having a budget and adhering to it is a responsibility that all entrepreneurs should follow through with if they want their business to succeed. While budgeting is a deeply personal endeavor and should be structured depending on what your company needs, today’s financial experts recommend using the lean budgeting approach. In a nutshell, having a lean budget requires you to only work when necessary as it mitigates overspending. This allows you to maximize value, reduce wasting your resources, and helps bring down overhead costs. Furthermore, a lean budget helps you deliver your product or service to your customers with as little cost as possible.
To create a lean budget, be sure to prioritize value streams over projects. This means that you should carefully figure out which steps to take to ensure that you’re providing value to your customers, and subsequently focus your budget on that.
Know How to Track Your Money
While it can be tiring updating your financial records and accounts with every expense that your business makes, it’s important that you stay on top of this so you track where your money is being spent. A lot of business owners find it hard to do record-keeping as the sheer amount of numbers and computations can get overwhelming.
To make this easier for you, be sure to stay organized and consistently update your records so the work won’t pile up. Furthermore, you can use spreadsheet on Excel and Google Sheets or bookkeeping software to keep all your financial information in one place.
Build Your Business’ Credit Score
Just like with every financially active individual, your business has its own credit score. This is separate from your own credit score, although its standing might affect how banks perceive your finances. It’s important to build your business’ credit score so you can find money whenever your business needs it. Financial institutions look at your organization’s credit rating before approving a loan, so it’s best to be ready and have a positive credit history. To build your business’ credit score, be sure to pay your bills on time, eliminate existing loans as fast as you can, and meet payroll needs.
Create a Clear Line Between Your Personal and Business Funds
Seasoned business owners know how important it is to separate your personal and business funds at all times. Creating a clear distinction between your personal and business money eliminates any instances of potential money issues in your business as this prevents you from withdrawing your organization’s money for personal expenditures.
Thankfully, this can be done right at the beginning of your business venture. Though most businesses start off as a sole proprietorship, one way to legally separate your business’ finances from yours is to set up a limited liability company. This relieves you of any personal liability in the event that your business goes bankrupt or runs into legal troubles. Additionally, it’s recommended that you open a separate bank account for your company and just pay yourself a monthly salary to separate your business and personal funds.
If you want to see your business grow and achieve success, it’s advisable to practice good money management habits. Aside from using the tips we’ve listed above, you can also choose to use the information from personal growth seminars, not only to help manage your business’ money but to also become a well-rounded entrepreneur and boss.
If you found this article information, check other great tips and guides here:
- Be Your Own Boss: Insights from Danielle Amos
- Why Skipping Traditional Education May Be Your Best Chance at Self-Made Success
- Adam Jacobs on Buying Failing Businesses and Turning Them Around