Five simple tips to keep your finances in check when establishing a small business

Starting a new business is an exciting adventure, but it comes with its challenges. One of the most significant challenges for new business owners is managing their money effectively. Poor financial management can quickly lead to the failure of your business. According to a study by CB Insights, running out of cash is the second most common reason why startups fail.

Fortunately, managing your money when starting a new business is not rocket science. By following some basic principles and using digital tools, you can keep your finances in order and avoid financial pitfalls. Here are five ways I managed my finances when I started my business. By implementing these strategies, you can ensure the financial stability and success of your new business venture.

Create a budget

Creating a budget is an essential first step in managing your money when starting a new business. A budget will help you understand your business’ financial needs and allocate your resources effectively. Begin by identifying all your expenses, including rent, utilities, inventory, and salaries. Once you have a clear understanding of your expenses, you can determine your revenue targets and set pricing accordingly.

Using digital tools like budgeting software or apps can help you easily manage your budget, track expenses, and identify potential cost savings. By monitoring your budget regularly, you can make necessary adjustments and ensure that you are staying on track.

Separate personal and business finances

Separating your personal and business finances is critical to effectively manage your money when starting a new business. Mixing personal and business finances can make it difficult to track your business’ financial performance accurately and can lead to tax complications.

Open a separate bank account for your business and use it exclusively for your business expenses. Additionally, consider obtaining a business credit card to help build your business credit and track expenses more easily.

Using digital accounting tools like QuickBooks or Xero can help you manage your finances and keep your personal and business expenses separate. These tools allow you to track expenses, generate invoices, and reconcile transactions, making it easy to manage your finances efficiently.

Monitor your cash flow

Cash flow is the lifeblood of any business, and monitoring it is critical to managing your money effectively. Cash flow is the amount of money coming in and going out of your business. You need to know your cash flow to ensure you have enough money to pay your bills and make necessary investments.

Using digital tools like cash flow forecasting software can help you predict and identify potential cash flow issues before they become problems. By monitoring your cash flow regularly, you can make informed decisions about spending and investments, ensuring that you have enough cash on hand to grow your business.

Minimise unnecessary expenses

Minimising unnecessary expenses is another critical way to manage your money. As a new business owner, it’s easy to get caught up in the excitement of launching your business and overspend on non-essential items. While it’s essential to invest in your business’s growth, it’s also important to be mindful of your expenses and minimise unnecessary spending.

Digital tools like expense management software can help you track your expenses and identify areas where you can cut costs. Look for opportunities to reduce your expenses by negotiating better prices with vendors, using free or low-cost marketing strategies, and exploring alternative financing options.

Build an emergency fund

As a new business owner, unexpected expenses can arise, such as equipment failure or unexpected regulatory changes. Having an emergency fund can help you weather these unforeseen expenses and ensure the stability of your business.

Digital savings and investment tools can help you easily build an emergency fund. Consider setting up automatic transfers from your business account to a dedicated emergency fund account each month. You can also explore investment options like high-yield savings accounts or money market funds to earn interest on your emergency fund.

Managing your money effectively is critical to the success of any business, especially in the digital business world. By creating a budget, separating personal and business finances, monitoring your cash flow, minimising unnecessary expenses, and building an emergency fund, you can ensure the financial stability and growth of your new business venture. Using digital tools and resources can make managing your finances easier.

Hemi Hossain is a digital entrepreneur, business coach and author of Fire Your Boss. An internationally acclaimed speaker, Hemi dedicates his life to coaching others in order to surface their true potential and make a positive, global impact on change and community.