The number one issue business owners face is limited access to capital. When starting a business, money problems can definitely shut things down.
To help you manage your money and reduce the risks associated with starting a business, we asked financial planners and entrepreneurs to share their tips and success strategies with you.
Here’s what the experts had to say…
What Financial Measures Can Entrepreneurs Take To Reduce their startup risks?
1. “Have at least one year’s worth of expenses in the bank before you start your business-period. This cash in the bank acts as a shock absorber when things don’t go according to plan. Golden rule number 2-make sure your spouse/partner knows exactly where you are financially each month during your 1st year in business. You can accomplish this by holding 30 minute financial review meetings. Your spouse/partner need not be an accountant or even understand numbers that well. More importantly, it’s a way of holding yourself accountable. Without this check and balance system, many new entrepreneurs go into denial mode, hide the bad news as long as possible and inevitably this ends in disaster.” –Mark Zaifman
2. Learn how to read your financial statements. “One of the biggest mistakes that business owners make is spending money chasing customers and sales instead of learning how to read their financials and make their business cash flow positive. The number one thing they need to do is know what their cash flow is at all times and the second is to calculate their breakeven. It is critical to know what day of the month they breakeven, stop paying everyone else and start paying themselves.” –Rhondalynn Korokak
3. “Nothing is more important than revenue. If you have to make a choice on where to spend money always default to activities that directly relate to an increase in sales. If no one is coming through the front door it does not matter that you repainted the walls. Also, do not spend money until the money is in the bank. No matter how “guaranteed” a deal is, never assume it is closed until the contract is signed and the money has been paid. A lot of things can go wrong between a “yes” until the bill is paid. Although it can be hard, avoid spending the money on upgrades until you are sure that you have received payment.” –Jeff Bogensberger
4. “The number one reason for failure is undercapitalization. One must assume that they will need one years working capital in addition to one years living expenses. We are constantly reminding our clients that they are not one in the same. Also, if people buy a business because they are overly emotional about the product or the service without understanding the role of the owner, they are in for a rude awakening. Make sure that you can separate the role of the owner from the role of the business. The two are very different.” –Mike Welch
5. “Put together an advisory team…you cannot do it all! Pay them when services are needed. Have a banker, attorney, insurance provider, CPA/bookkeeper and small business consulate -if you cannot pay for one check out the local Small Business Development Center or the Service Corps for Retired Executive (SCORE) in your community that offer free or low cost services. Make sure they understand your business plan and will work together for you!” –Denise Beeson
6. “There will always be a surprise. Part of your plan should include your personal life style and spending. Be prepared to cut back significantly if needed. This means the kids might not have cable TV to watch, or new cars are out. Planning and discussing this up front can save a great deal of tension down the road if surprises pop up. Often times a new business hits a tight spot, when the spouse is not on board and the family pressure causes the choice to abandon the dream.” –Harlan Goerger
7. “Survey your prospects and potential clients. Rather than develop solutions on what you think are your prospects problems, why not just ask them? Then develop programs with different price points that people can choose from.” –Justin Krane
8. “Most importantly, don’t underestimate your own ability. Attempt certain jobs before paying someone else; not only do you save up front money but your passion and vision will end up showing in the project. There is so much information available, you can often teach yourself the basics. Later, when the cash flow is available, you can pay a professional to work on refining those projects.” –Geoff Lester,
Let the financial advice above help you minimize your business risks and keep more money in your bank account. If you have any additional financial tips, to help entrepreneurs build a strong foundation for success, please share them below…