There has never been a better time to become an entrepreneur. As more and more stories of successful startups start to emerge, business-savvy individuals are finding new ways to use their knowledge and skills to create a viable business. Below, we have compiled seven financial tips that will help aspiring entrepreneurs set themselves up for success.
1. Share the Financial Risk
If you are planning to start your own business, you should look for additional partners. Whether they are silent investors or active business partners, it is important to make sure that you are not relying on just your own savings to fund your startup. By sharing the financial risk, you can help avoid a major personal financial disaster should the start-up fail. On the other hand, if each partner has a shared financial risk in the company, this will also create an environment where each partner feels equally invested in seeing the company’s success.
2. Have a Plan for Raising Capital
Though most individuals may have some idea of how hard it is to raise capital, many entrepreneurs do not plan accordingly. New business owners need to factor in the time that it will take to raise the necessary capital for their overall business plan and timeline. In addition, they should have an idea of how they plan to raise this money before looking for investors. There are a variety of financial resources available to entrepreneurs, and taking the time to research each of them will pay off in the end.
3. Look Beyond Just Traditional Lenders
Many entrepreneurs struggle to find adequate funding to start and grow their business. This could be due to the fact that they have very little business history or their credit score is not the best. Even if an entrepreneur is denied a traditional bank loan, that does not mean that they should give up. Alternative online lenders offer loans for professionals who want to start or grow their business. Using real-time data, these lenders are able to get a more accurate picture of your credit worthiness and often have more flexible lending options.
4. Make Sure You Are Spending Wisely
Of course, this is easier said than done. However, it is still a vital piece of advice for those who are new to business. It can be very easy to spend too much money on non-essentials early in the business’ development process. When it comes to spending, you should be conservative during the business’ formative period. Consider how your spending will impact the business in the long-run before you hand the money over. This will help you avoid running out of capital too soon.
5. Price Your Product or Service Appropriately
When determining a price for your product or service, you want to make sure that you are not under or overcharging. The best way to do this is by getting to know the price points within your industry while also remaining conscious of your actual business costs. Research what prices look like within the industry and consider your own business needs. If you plan to compete based on price then you need to make sure that you can still cover other business costs, including self-employment taxes.
6. Consider Keeping Your Day Job for a While
It can be tempting to get caught up in the excitement of creating a new business and becoming your own boss, but you should carefully consider whether or not you will quit your job right away to pursue your business dreams. Many entrepreneurs keep their day job while working on their startups, especially during the planning stages of the business. This allows them to continue earning income and saving money while they prepare for the next big step. Though this can be stressful, it is a good way to avoid financial distress later on.
7. Make Sure You Are Managing Personal Finances Effectively
Though personal finances and business finances should always be kept separate, it is important to establish healthy financial habits early on. If you cannot manage your own finances, it will be very hard for you to effectively navigate the finances of your new company. Even if you are hiring professionals to take care of accounting and taxes, it is vital for you as the owner of a new business to learn and practice effective money management.
Though finance may not be the most exciting part of the startup process, it is vital to an entrepreneur’s success. Following the tips mentioned above can help you get on the path to financial management success and can help you effectively grow your business long into the future.