How To Handle Your Finances When Starting A Business
Updated 5/2/2023
Starting a business can be a dream that most people would think of as out of reach. It’s expensive to get things started, and it’s also quite a large risk when it comes to financial commitments. Before diving into the financial management aspect of your new venture, it's crucial to establish a solid foundation by learning how to create an LLC, which provides legal protection and tax advantages for your business.
If you’re going to start a business, it’s helpful to find the best ways to be financially conservative in the beginning, allowing yourself time to build the business and grow it slowly without accumulating massive debt or working insane hours just to barely get by.
When I started One Nine Design, it meant leaving the full-time workforce for the first time in my life. Making some of the early investments was scary but I had some great advice going in — it takes very little capital investment to start a service-based company so don’t spend where you don’t have to - yet.
As I started to gain more clients and more income, I slowly invested in the places that would have the biggest return (like client management software, technology, etc.)
The type of business you’re starting and the required upfront commitments will vary but there are our areas to consider as you start a business and make financial decisions:
Cost efficient investments
Using grants or loans
Outsourcing
Prioritizing customer/client satisfaction
Look for more cost-efficient investments
Starting a product-based business can require you to invest in a lot of equipment to get going. You’re likely to need inventory, marketing, possibly even employees, and it can be hard to cut corners in a lot of those areas. If there’s one thing you can afford to look for more economical prices on, it’s furniture. Cheap office furniture is fine if you’re just starting out, and it’s important that every other aspect, like employee wages and customer satisfaction, are covered. If you can save money at the expense of your own comfort, then being able to invest that money back into the business can take you further.
Consider applying for a grant or loan
In some cases, when you’re trying to start up a business, you can apply for a government grant to help get you started. Having someone else’s money in place of your own for a lot of your investments can take you a long way, and give you the headstart that you need. Of course, your business will need to meet the requirements for the grant, and not all businesses can. Alternatively, if you can find an investor who’s interested in funding your business, that can be another viable solution. That option comes with other strings as you’ll be entering a mutually beneficial relationship with an investor, and you’ll be required to return the money (plus interest) over time but it’s definitely a route to explore and consider.
Outsource where it makes more financial sense
Keep in mind that it’s not always essential to own everything within your business. You also don’t need the people working under you to handle every single aspect of the business. Some businesses prefer to outsource a lot of their processes to other businesses to save them time and money. Mastering the art of outsourcing takes time and practice but it can be a long-term business decision that pays off when done thoughtfully.
The first step in spending management is to analyze the current situation to identify areas where there is room for improvement. As far as possible, all relevant employees and managers of the company should work together.
What are the regular and irregular costs?
Are the expenses reasonable?
What contracts are in place with suppliers, and can you reduce your logistics costs?
It's essential to determine and assess all cost factors to develop tailor-made procurement strategies for your company. Learning new methods and tools will help you set up a holistic expenditure management system or improve the existing one to increase your cost efficiency.
You may want to look at saas spend for example. Smart spend management helps you better enforce purchasing policies, meet your company's financial goals, increase profitability, and make savings in areas you haven't yet identified.
As you continue to reduce expenses, compiling an overview of current and projected expenses is helpful to identify opportunities:
Where do employees spend money?
Where do subscriptions run that might not be necessary?
Which suppliers are the main cost drivers, and would renegotiations be worthwhile?
With a clear overview, you can eliminate unnecessary costs while reprioritizing other funds for increased efficiency.
Prioritize customer satisfaction
While making smart financial investments is critical, it should never come at the cost of customer satisfaction. If you ever need to sacrifice customer satisfaction to keep the lights on, your reputation as a business will decline, and you’ll likely lose customers to your competitors. This applies to employees as well. It’s essential to consider how your cost-cutting measures will impact your customers and your employees and make the best decisions that benefit the business and your people.
In the world of business ownership, there are endless decisions to be made and financial decisions are typically at the top of that list? Each takes careful consideration, experience, and being surrounded by great people to help you understand the impact of each decision. What were your best financial business decisions? Let me know in the comments!
Until next time,
Andrea
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