Starting a business is an exciting and challenging endeavour. As a business student or graduate, you are likely to have honed your strategic and management skills, but one area that can often be underestimated is financial management. Establishing strong financial habits from the very beginning of your business journey is crucial for long-term success. Here are 10 essential financial tips and habits that we believe every entrepreneur should adopt from day one.
1. Create a solid business plan
Before diving into the world of entrepreneurship for the first time, it’s essential to have a well-thought-out business plan. Your business plan, or business model canvas, serves as a roadmap for your company’s growth and success. It should include detailed financial projections, such as revenue forecasts and expense estimates, as well as a personal survival budget and cash flow analysis. A solid business plan not only helps you secure funding but also provides a clear picture of your financial goals and how to achieve them. With that said, a plan can only take you so far – you have to start.
2. Separate personal and business finances
One common mistake many new entrepreneurs make is mixing personal and business finances. This can lead to confusion and tax issues, while hindering your ability to track business expenses accurately. Create a dedicated business bank account and maintain a clear separation between personal and business transactions. This practice will make financial management more straightforward and improve your business’s financial transparency.
3. Monitor cash flow closely
Cash flow is the lifeblood of any business. Monitoring your cash flow is crucial for ensuring that your business can cover its expenses, invest in growth and weather financial challenges. Create cash flow projections and regularly review your income and expenses. Be proactive in managing outstanding invoices and consider implementing a cash reserve to handle unexpected expenses or periods of reduced revenue.
4. Keep detailed records
Accurate financial records are essential for making informed business decisions, preparing tax returns and attracting potential investors or partners. Use accounting software to track income, expenses and other financial transactions. Maintaining organised records will save you time and stress when it comes to financial reporting and analysis.
5. Budget wisely
Budgeting is a fundamental financial habit that helps you control spending and allocate resources efficiently. Create a detailed budget that outlines your expected income and expenses. Review your budget regularly to identify areas where you can cut costs or reallocate resources to support growth initiatives. Sticking to your budget will help you maintain financial discipline and avoid overspending.
6. Set aside emergency funds
Financial stability is vital for your business’s resilience. Unexpected expenses or economic downturns can put your business at risk if you’re unprepared. Establish an emergency fund to cover at least three to six months of operating expenses. Having this safety net in place will provide peace of mind and ensure your business can weather financial storms.
7. Understand taxes
Taxes can be a complex and often daunting aspect of business ownership. Take the time to understand the tax obligations specific to your business structure and industry. Consult with an accountant to ensure you’re taking advantage of all available deductions and credits. Proper tax planning can help you minimise your tax liability and avoid costly mistakes.
8. Invest in financial education
Financial literacy is an ongoing process. As a business student or graduate, you will surely understand the value of continuous learning. Invest in your financial education by attending workshops, seminars and online courses that focus on financial management for entrepreneurs. The more you know about finances, the better equipped you’ll be to make informed decisions for your business.
9. Seek professional guidance
Don’t hesitate to seek professional financial guidance when needed. Accountants, financial advisors and business consultants can provide valuable insights and help you make informed financial decisions. Building a trusted network of financial experts can be a valuable asset as your business grows.
10. Plan for growth
Finally, always keep an eye on the bigger picture. While managing day-to-day finances is essential, don’t lose sight of your long-term financial goals. Develop a growth strategy that includes financial milestones and objectives. Continually assess the financial health of your business and adapt your plans as needed to ensure you’re on track to achieve your goals.
Ongoing process
By creating a solid business plan, separating personal and business finances, monitoring cash flow and adopting the other habits outlined above, you should be well placed to build a financially sound and prosperous business venture. Remember that financial management is an ongoing process – continuous learning and adaptation will be central to achieving long-term success in the world of entrepreneurship.
Bianca Miller-Cole and Byron Cole are the authors of Rich Forever: What They Didn’t Teach You about Money, Finance & Investments in School (John Murray One, 2023)
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