6 Financial Tips for Entrepreneurs
by Ashley Feinstein, Contributing Writer
Article Sponsored by: Pizza Factory
Being an entrepreneur is an extremely fulfilling career where you get to challenge yourself daily, live your passion and experience great freedom. While you may enjoy spending your time on your expertise or the operations side of your business, other aspects, such as the finance side, may feel overwhelming. You probably have a mile long to-do list, might not have any experience in finance and may not even see the need to spend your precious time concentrating on the numbers. It’s enough to make you avoid or completely neglect them altogether!
1. Set up Monthly Bookkeeping.
As a small business owner, it can be tempting to lump your personal finances in with your business finances. Many of your personal expenses are also business expenses and it might feel simpler to look at them both together. I highly recommend keeping your personal finances separate from your business finances for many reasons. If your personal and business expenses aren’t separate, it makes it very difficult to see how your business is actually doing. Large personal expenses can make business earnings look smaller than they actually are and vice versa. It will also add a lot of unnecessary work at tax time.
As an entrepreneur, you will want to create projections into the next year and even the next few years. What do you expect your company to earn in the coming months given what you know about your current business and potential new revenue? What can you expect to spend each month based on your recurring bills, when annual expenses fall and the new investments you’ll need to make in your business? Breaking down how many new customers you'll need to achieve your revenue goals will help you put together a plan to make it happen. Also, if you know you have a large expense coming up, you can plan for it accordingly by saving cash for a certain period of time, creating a payment plan or getting access to financing. If the large expense comes up and you didn’t plan for it, you will have to scrape the money together quickly and may have to take on unfavorable and expensive financing terms.
3. Build a cushion.
While many expenses can be planned for, others come unexpectedly. To protect your business and yourself, you need to make sure that you have a financial cushion saved up. Ideally, you will have a personal savings cushion for emergency situations as well as a business savings cushion to use in case of unexpected expenses. Emergency funds are important for everyone to have but are especially important for those with irregular income because you want to have money to turn to in the event of a low revenue month. The size of your emergency or rainy day fund depends on your personal comfort level, but you can start by calculating your personal and business burn rate. A burn rate is how much you expect to spend each month. For your personal life, this is how much you spend on housing, bills and food. Then you can think through a couple of surprise or emergency situations and decide how many months savings you would like to have to make you feel comfortable. Anything is better than nothing so don’t fret if you don’t have as much saved as you had hoped! You get to decide how much you can put aside for your rainy day fund each month and have that transfer over automatically each paycheck until your fund is as large as you’d like.
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