A Substantial Guide to Financial Management for New Business Ventures

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Corporate expenses are at the core of every startup business. Without securing your financial investments, you could be at the risk of losing your business before even getting it off the ground. Thousands of companies operate as starters each year and realize that as new business leaders they must develop the necessary skills needed for financial management; the most critical areas of which are cash management and bookkeeping.

When this is done according to the tips and rules shared by business experts, finance managers are able to analyze the financial situation of the business. In this short guide, you can learn about the important caveats that must be kept in mind to raise your chances of success when it comes to the most important aspect of the business: the practice of financial management.

Seeking Investment or Loans that are Risk-Free

Seeking business loans from friends or family is one of the most risk-factors and spares you loan fees and interest charges. Many entrepreneurs fund their businesses either by distributing shares among close peers, allowing friends and family to make equity investments or by getting a business loan from them. With this option you don’t have to ‘win’ over prospective investors, making sure your idea appeals to them but you could just present it to your family/friends, seeking their assistance, provided that you set up criteria and ensure that boundaries are established.

This is to make sure that in the event of losing your business, your relationship with your close peers isn’t affected as nobody likes losing money or chasing the amount they’ve lent to others. Have a lawyer draft up terms which dictate the privileges of your creditors and the guarantee of return of their loans. You should also include your company’s business plan and clear strategies on sustenance to give them assurance.

Managing Debts Carefully

If you’re struggling with paying off loans or have defaulted, the wise thing to do is to talk to your creditors and set up a payment plan. Before anything though, it is important that you analyze your debt and understand whether your debt is due to personal liabilities or not. Personal liabilities can indeed cost you personal assets but if your debt is due to business failures then it is your business that is liable and hence, your personal assets can remain protected from your creditors.

Different types of business debts tie you to different terms and conditions, which is essentially determined at the time of receiving loans. Your type of business will determine the kind of contract you’ll abide by. This means consulting a lawyer before formally registering your business can help in situations in which you may end up as a debtor. Also, maintaining a legal distinction between your business and your personal financial affairs is one way to avoid getting your creditors holding you personally responsible for your business-based debts.

Separating Personal and Business Finances for a Clear Financial Analysis

Keeping your records straight is extremely useful, especially in avoiding mixing your personal and business expenses together. This gives you clarity with regards to your business input and output. It also helps you file taxes with ease as you can easily know what to deduct and what not. With a clear budget based on your profit earnings, you can better control and calculate your investments. If you have other people involved in your business, having a clear record of everyone’s input can help prevent problems later on.

Cutting Costs

Having the practice of cutting costs at the forefront makes businesses prosper better. It is imperative that business owners keep their businesses in check and reduce costs as much as possible. However, this shouldn’t come at the expense of customer satisfaction or quality service. Businesses entail 2 types of costs, which are variable and fixed costs.

The variable costs are those which can be adjusted and saved on while fixed costs are basic investments which must be maintained. You can manage reducing variables costs by utilizing appliances that are in working condition, conducting free online calls and internet-based communications, using e-message systems and eliminating paper and pen use as much as possible.

Monitoring and Measuring Performance

Monitoring financial movement by comparing the current year’s performance with that of last year helps you understand how far you’ve come and where exactly you stand. If the comparisons demonstrate an increase in activity, you can note down the strengths involved in making this possible. If they demonstrate a fall in activity and hence profit, you can analyze the factors that caused this plunge and work to eliminate any shortcomings and poor strategies.

Looking after your company’s financial performance includes studying competition, customer demands, and how well potential customers are exposed to your business. Implement successful marketing gimmicks cost-effectively. Stay alert and keep yourself aware of the changing trends and the aspects that boost your business. Involve your judgement in these areas so that you can make informed decisions.

Using Resources at Your Disposal

Utilization may not be an attractive idea to many entrepreneurs but when it comes to actually earn a profit, wisdom lies in reducing input costs as much as possible. Starting your own small business is hinged on financial reserves and security, but if you look towards what you already have available, you benefit yourself in two potential ways: 1). In the event of a business failure, you do not lose outsourced money; 2). You get the opportunity to minimize expenses and maximize profitability from the very start.

So, if you already have a warehouse, start a business that requires commercial space as its basic operational feature. If you inherited a business, you can maintain its customer base and add your own network of contacts to it as well. If you have exceptional skills in a certain field, consider that a resource and proceed to put them to work.

Most entrepreneurs do not have the opportunity to amass enough capital to launch a business and hence stay held back because of this. But at times even if some entrepreneurs manage setting up businesses, they’re likely to fail in a short period of time due to lack of skills in financial management. Learning and exploring safe avenues to bypass risky investments and negligent management of finances can create opportunities to successfully keep businesses afloat. On top of that, having the knowledge of successfully managing your financial obligations in advance can serve as a big stepping stone.


Image Credits: Isaac Smith

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