New business are very vulnerable to financial ruin. More than half of small businesses fail within the first few years, and most fold under financial burdens. You, as a small business owner or founder, can start with a few small practices to make sure you give your company the best chance to survive in the long run. While it’s tempting to only focus on the customer side of your business model in order to build a client base, it is foolhardy to ignore the bookkeeping and expense-tracking side.
If you do ignore the expenses and debt in favour of customer experience or product development, you could get overwhelmed really fast and would no longer be able to focus on the main objectives of your business. Here are the few salient practices that we recommend so your new business can build a strong financial foundation.
- Set realistic goals for the short term
While it is important to dream big, there are benefits to having realistic short-term goals. Set goals that are well backed by a good business plan. We recommend keeping well-structured short-term goals that lead towards long-term goals.
Achieving short-term goals like filling open positions, hiring initial clients, etc. are easy enough to keep track of, but less obvious goals are important too. You can keep track of things like preparing expense reports, budget planning and monitoring, when you have set goals that can give you positive feedback on the completion of the tasks.
We recommend keeping realistic short-term goals to remind and encourage yourself instead of keeping esoteric vague goals resembling a mission statement. Keep handy reminders of these goals, because if some crucial things are delayed for too long, you might not be able to get them done as you wanted.
- Implement a realistic business plan
A solid business plan would help you achieve your goals on time and would set you up on a well-structured path to success. A good business model can help you figure out your demographic; your cost, price, profit margins; and even how to go about financing your business. If you have done everything according to your business plan, you will have all the relevant market research and strategy handy for when you are ready to open your doors.
You might think that you would be able to get a hold of this information when you need it, but that’s risky. By the time you urgently need this information, you would no longer have time to do it properly without setting your progress back. We recommend having a dependable business plan before you do anything else, it would give you a stronger safety net.
- Manage your business expenses smartly
Even small businesses can waste a lot of money for things that are easy enough to source, by spending much less money. Yes, there are several expenses that you cannot compromise on, for example insurance and product quality cost. But the digital age makes a lot of traditional expenses negotiable.
Instead of using traditional and print media for marketing, create your own website and social media presence. Instead of leasing huge office space from the word go, give your employees an option of working remotely if their role allows for it. Depending on the type of your business, you can make several smart financial choices.
- Take feedback
After each project, take feedback from your clients, employees, and partners, so you can see how you and the business are performing. This lets you head most problems at the pass, and you can intervene before some trivial things become critical. It is also important to take feedback in order to instil trust in the process. This not only allows your clients to see that you are open to suggestions, but also that you are willing to change things. This allows them to see your flexibility and your commitment to quality.
If you can implement constructive feedback productively, you will also be able keep up with the pace and direction of your business. Sometimes founders and owners miss key things that are very visible to experienced employees and clients, so you could save yourself a lot of future work by initiating constructive communication within and outside your inner circle.
- Have an emergency fund
Whether it is a client that hasn’t paid on time, a deal that has fallen through, an unseen expense, or all of these scenarios together; small business can end up facing financial drought that can bankrupt even the best-set up operations. No matter how well you think you have planned your finances, having a separate emergency fund earmarked only for your business is essential for the health of your business.
- Hire an expert
We understand that focusing on finances can be tough while you are trying to get your business off the ground. It feels counterproductive to think of expenses when you are trying to make an impossible dream happen. But unless you have self-replenishing pot of gold to support your funding, you need to be smart with your finances.
While it may seem like an extra burden to support an extra employee, especially in the early days of business, accountants can give you a huge boost in performance by guiding you well. Hiring a good accountant will make sure that your expense reports and breakeven analysis updates are not ignored while you work diligently to make sure your business can reach its customers. A good accountant hired early in the process can also give you the expert advice needed to help you save a lot of money. They can guide you while you chose the appropriate business model to maximise your profits and expand market base. All this can make your business more stable and sustainable in the long run.
- Identify and separate your work life from your personal life
Keeping your personal and business expenses separate is important when it comes to managing your expenses well. Maintaining separate accounts, cards, and finances for the different types of expenses not only helps you keep track of them, but also protects you in case of an audit.
Managing finances is only one facet of maintaining a good work-life balance. Managing proper workspace and work hours are also important. That would not only help regulate your work, but would also help you engage and disengage faster.
- Value yourself
We are not talking just about self-confidence. We mean pay yourself in a consistent manner. Keep track of your own salary and expenses. Give yourself bonuses, raises, retirement plans the same way you would to an employee. This helps your productivity and lets you positively reinforce good results. This also means that you set similar performance goals and feedback opportunities for yourself as you would for a valued employee.
If you have a strong financial foundation, you will not only be well set up for smooth operation, but also manage to have a sustainable business plan.