With more people dreaming of being entrepreneurs, the ticket to success may not be in having the next killer idea or disruptive concept, but in having stronger financial management than the next guy in line.
How to handle your finances should be the first question you should ask yourself when planning to launch a startup.
Here are five tips to help you avoid some common financial mistakes other entrepreneurs make:
1. CREATE A BUDGET
Budgeting is the process of creating a plan to spend your money. Creating a budget allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
Budgeting does more than making room for upcoming expenses; it also ensures that unexpected ones don’t prove disastrous.
2. MIXING PERSONAL AND BUSINESS FINANCES
One thing you should never do in your business is to combine personal and business finances.
While nothing may seem wrong with using business funds to just get a couple of basic personal needs, mixing business transactions with personal ones is a sure way to lose control of your finances.
When business and personal expenses are charged to the same account, it becomes impossible to maintain an accurate budget. Even though you are your own boss, still think of yourself as an employee, and while you can’t surely use business funds as an employee, then don’t do that with your own business.
3. LIMIT YOUR FIXED EXPENSES IN THE BEGINNING
In the early stages of a startup, keeping your expenses low is the key to longevity. Operate thin so you can allocate the majority of your capital to growth.
Too many startups focus on the wrong things, thereby incurring certain unnecessary expenses. They forget that generating revenue should be their top priority.
4. TRACK AND MONITOR ALL EXPENSES
With a new startup, there are going to be expenses coming at you from every direction, and with this, it may be very difficult for you to track all the expenses. But make sure you track all your expenses; this will help create a financial plan (budget), and help you avoid unnecessary expenses another time.
5. DEBT REDUCTION
Debts can be problematic for entrepreneurs. This is especially true if they’ve taken on debt in pursuit of starting the business. You’ll be paying interest on your debts, consistently, so if you aren’t able to reduce them early on, you might become the victim of compound interest and end up owing far more than you originally borrowed.
If possible, try bootstrapping your startup, try as much as possible to avoid loans or borrowings. As an entrepreneur, one of your biggest priorities should be to get your debts under control.