Three tips for managing finances early in your business journey
The early days of running a business can be tough. You’re trying to get to know your audience, market your products and services, and maintain some semblance of life-work balance. If you add financial stress to the picture, the outlook can be grim.
If it’s early in your business journey, here are three tips for getting your finances in order before you go any further down the entrepreneurship road!
Know Your Numbers
The first step to getting your finances in order is to know your numbers. This includes both your current financial situation and your goals for the future. Knowing where you stand will help you create a plan to get where you want to be.
To get started, take a look at your income and expenses for the past six months. This snapshot will give you an idea of how much money is coming in and going out each month, where it's going, and where you might be able to make small, incremental changes.
Once you have a handle on your monthly cash flow, you can start setting some financial goals.
Some things to keep in mind when setting goals include:
How much money do you need to save each month?
What are your long-term financial goals?
What are your short-term financial goals?
Sometimes it's best to bring in a trusted advisor for help navigating this part of your business. Kevin Canterbury specializes in this area, for example, or you can seek out someone in close geographical proximity to you.
Create a Budget
Once you've done an audit of your current financial situation, the next step is to create a budget. A budget will help you track your spending and ensure that you are staying on track with your financial goals.
When creating a budget, remember to include both your fixed and variable expenses. Fixed expenses stay the same each month, such as rent or mortgage payments. Variable costs can fluctuate from month to month, such as utility bills, office supplies, or subcontracting expenses.
If necessary, once you have all of your expenses accounted for, you can start working on ways to cut costs.
There are a few different ways to approach budgeting:
The 50/30/20 Rule: This rule suggests that you should spend 50% of your income on necessities, 30% on wants, and 20% on savings and debt repayment.
The Debt Snowball Method: This method has you focus on paying off your smallest debt first while still making minimum payments on your other debts. Once you pay off the smallest debt, you can apply that payment to the next smallest debt, and so on.
The Envelope System: This system uses cash envelopes to budget for specific expenses each month. You would start by withdrawing the cash you need for each category and placing it in an envelope labeled with that category. When the money in the envelope is gone, you can no longer spend in that category until the following month.
There's no single right way to budget so find a system that works well for you!
Automate Your Savings
One of the best ways to make sure that you are saving money each month is to automate your savings. You can do this by setting up a direct deposit into a savings account from your paycheck. You can also set up automatic transfers from your checking account to your savings account.
Automating your savings will help you reach your goals faster and make it easier to stick to your budget.
If you are unsure how much you should be saving each month, start small with something like $50-$100. Once you have automated your savings, you can increase the amount as needed.
Another option is to save a percentage of your income each month. For example, you could save 20% of everything that comes in. This method is a great way to ensure that you always save something, even when your income fluctuates.
Running a business is complicated and sometimes overwhelming. The earlier you can get your finances in order and have a secure financial foundation, the more successful you are likely to be! What is some of the best financial advice you’ve received since starting your business?