Financial Tips To Set Up A New Business

“Many people dream about being an entrepreneur, starting their own business, working for themselves, and living the good life. Very few, however, will actually take the plunge and put everything they've got into being their own boss,” said Fabrizio Moreira, the famous politician and businessman.

So, first of all, congratulations if you have decided to be an entrepreneur and your own boss. It’s a big step to take but there’s nothing like chasing a dream. It takes time to be mentally prepared to be an entrepreneur, and mostly it happens after you have spoken to industry experts for insights or have read dozens of business books. While all this is necessary, the common mistake most young professionals dreaming to build their own business empire commit is that they focus too much on the dos and ignore the don’ts. Passion and courage are necessary traits but without caution, all progress can come to a halt.

So, here are a few points to help you avoid the common financial mistakes that have wrecked many businesses.
 

Financial Tips for Setting up a New Business

1. Diversification of Funds

As they say, "Don't put all your eggs in the same basket". Investing all funds in one business can lead to earth-shattering losses if the business idea flops. No matter how accurate your idea is, you need to respect the element of risk in business and refrain from putting all your money in one sector. The more prudent call is to invest in diverse portfolios. Diversifying your funds will help reduce the risk and yield better returns.
 

1. Maintain Healthy Credit Score

As an entrepreneur setting up a new business, you may have raised funds from private equity or financial institutions. In which case, you must make sure to pay off your debt on schedule. Delay in debt payments or EMI bouncing can negatively impact your credit score and history, as well as your business's credibility. Since business funding requirements are recurring in nature, having bad creditworthiness can put you in a major financial pinch. The reason—credit history demonstrates your repayment capability.

So, whether you are a recognised entrepreneur or a startup, do not forget to consider this financial tip while making plans and building strategies. Maintaining a good credit score not only helps you grow your business but also improves your reputation among customers and stakeholders.

1. Demarcating Personal and Business Expenses

The moment you start your own business, create two accounts—one strictly for business dealings and the other to run your personal expenses and make it a point to never mix the funds except for transferring a fixed amount from your business account to your personal one as your salary (yes, that's important). It helps in understanding the cash flow and in making easier calculations at the end of the month. Also, it is equally important to track your expenses on a daily or weekly basis for a better understanding of income, expenditure, tax calculations etc. Also, if you think maintaining a diary is a difficult job then don’t worry, you can take the help of one of the many software that is designed and developed for this purpose only.
 

1. Emergency Cash Cushion

Most businesses fail not because they don't have good ideas but because they run out of cash. It is important to create a strong financial foundation. So, don’t quit your job in the excitement of your innovative idea until you have saved enough money for the next six months. Forget the salary, without the job, you will also lose out on the perks such as health insurance, subsidised lunch, parking space, movie coupons etc. The emergency backup plan will help you in difficult times. So, basically, hope for the best but more importantly, prepare for the worst.
 
ALSO READ: Funding Options for Small Business and Start-ups
 

1. Keep Your Budget in Mind:

One of the leading causes of new and established business failure is the neglect of the annual budget. A budget is a business roadmap that assists you in making quick decisions in times of crisis. It also helps you decide when to go with SME finance and what type of business financing you would need at different stages.

One of the most important tips for small business owners is to keep track of their income and expenses. Since business needs change over time, you must examine your budget regularly and make changes as needed.
 

1. Low Fixed Expenses

Fixed expenses are the costs that do not fluctuate much with a rise or dip in production level. Some of the best examples of fixed expenses are house rent, insurance premiums, subscriptions, salaries, and advertising. One of the most common mistakes that many entrepreneurs make is going for a flashy office to make a statement, only to realize later that it outweighs the benefits. Keep the fixed expenses to the minimum so that the money can be utilised for other business activities.
 

1. Insure Your Business

Businesses are full of uncertainties and hurdles and it is not wise to jump and start a business without insurance cover. It takes one wrong step to bring the whole business down. Insurance plans give you the cushion. A variety of insurance plans exist for entrepreneurs. Some of them are:

• Property insurance for small businesses and shops: If you own a shop, factory or office space, you should consider buying this policy since it protects the property and the interests of the business owner in case of a mishap such as a fire, burglary, accident, machinery breakdown etc.
   
• Auto insurance: If your company owns vehicles, then auto insurance is a must since it will protect in case of damage and collisions.
   
• Liability insurance: Every business, even home-based ones, needs to have this one to protect itself against risks. This covers your legal liability towards a third party in case of accidental deaths, injuries or bodily harm or damage to their property.

There are other insurances that you can consider such as fire insurance, directors & officers liability insurance, contractor’s all-risk insurance, plant and machinery insurance, shop owners insurance, burglary insurance, group life insurance etc.
 

1. Automate your Bill Payments:

If you are a startup looking for business tips for beginners, put automating your bill payments at the top of your to-do list. Since the responsibilities associated with a business grow over time, it is practically hard for a business owner to remember when certain payments are due. There is a high possibility that you will forget about your utility bill payment deadline, your small business finance EMI deadline, and other important payment dates.

As such, automating your bill payments and avoiding any manual payment transaction makes a lot of sense. Switching to this approach not only saves you time and effort but also saves you from late payment penalties.
 

1. Invest in Technology

Today, running a successful business or expanding your reach necessitate the use of innovative technologies. Whether it is marketing, cyber security, customer data management, payment methods, or anything else, technology is assisting businesses in every way possible. If you are a novice with little knowledge of business, you may choose to invest in accounting suites that offer integrated financial planning, budgeting, and management. This is the most important business tip for financial planning and implementing it effectively can help firms reach new heights in no time.

ALSO READ: Growth Strategies For Small Businesses

Be honest with your investors, set and achieve measurable goals within a deadline, look after your employees and not to forget, make the best of the financial tips discussed above for a better shot at success. Being smart with your money choices from the beginning will pay off in the long run.
 
Disclaimer: This post was first published on 27 July 2018 and has been updated for the latest information, freshness, and accuracy.