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10 Financial Decisions Before Starting Your First Business

10 Financial Decisions Before Starting Your First Business

Some people believe that launching a business is stressful. Uncertainty exists no matter how well you plan your to-do list or schedule your time. However, there are two sides to a coin. Most businesses collapse due to financial factors such as the entrepreneur running out of cash, being incapable of paying workers, or not supplying enough goods to stay afloat.

The great startup plans may never develop into profitable businesses without a strategy and some financial measures. Many businesses’ eventual profitability or even existence is determined by the amount of planning done by the owners at the very first stage. To avoid unpleasant circumstances, plan ahead of time with your funds. Before you establish a business, you should take a few financial actions.

Make a thorough business plan

It’s nearly difficult to build a roadmap to financial prosperity for your organization without a business strategy. You can utilize your business strategy to supplement your budget and visualize your company’s aims and objectives.

Your business plan must reflect all of your projected expenses. It should reflect from the cost of sales and labor expenditures to machinery, marketing, company licenses, taxes, and more. Financial management ahead of time might help you prevent unpleasant financial surprises once your business is up and running.

Raise Funds

Any company’s lifeline is capital or funds. In general, the more you can invest as capital, the better. Not only might you require cash to get your firm running, but you may also want to reserve capital for occasions when business might surely stall. It can be beneficial to speak with a business professional when starting a firm. They can ensure that you don’t forget any essential spending categories.

You might need some funds for buying supplies, equipment, paying wages, marketing, rent, insurance, furniture, etc. Consider the amount of capital considering the type of business you’ll be operating. Many small-business entrepreneurs start their businesses with their own money, but you may also seek additional funding from investors or borrowed capital.

Collaborate with a reputable business lender

Even though you don’t require funds to begin your firm, you’ll almost certainly need them at one stage. Small businesses generally find credit unions and community banks ideal collaborators because they recognize the local business environment and could be liberal with conditions and loan packages.

It’s preferable to establish a connection with a suitable business lender before requiring its services. This way, you don’t have to start from scratch if you require a loan or other type of funding.

Create a business account

As essential as this may seem, many smaller companies do not do it. Instead of getting into a business checking or savings account, they use their personal checking or savings account. Some companies that have a company account use it to pay for personal expenses. Get a business bank account.

When you combine business and personal in such a manner, your LLC or corporate protection could be revoked. “Piercing the corporate veil” is the technical term for this.

It is the dissolution of the legal barrier between shareholders (business owners) and the company. If the business is sued, the company’s proprietors may be held personally accountable.

Consider using accounting applications

This tip is related to the last one since accounting software typically requires a bank account. Accounting applications such as QuickBooks, FreshBooks, Sage, and others are excellent for tracking business revenues and costs. This is how you may track your profits and losses monthly and yearly. Because you can only modify what you can assess, it’s essential to allow your business to improve.

Using technology or applications will also make it easier for the qualified professionals you employ to handle and file your taxes throughout tax season. This could also save your finances as they will take fewer hours on your taxes. Everything will be more orderly and well-organized.

Establish a business budget

Another crucial financial decision you must make before establishing a business is deciding on a business budget.

Even if you haven’t launched your company yet, it’s essential to assess expenditures and create a business budget. It will also assist you in keeping track of your costs, allowing you to focus on growing your business rather than thinking about your personal finances.

Make a list of one-time startup expenditures and monthly or one-time yearly expenses. Consider the cost of accounting and billing applications, training programs, social media marketing applications, email marketing applications, and contractors as part of your business.  Creating a realistic budget will assist you in staying on track.

Calculating and monitoring business expenses correctly will give you an accurate estimate of how much it will take to keep your company sustainable.

Ben Reynolds founded Sure Dividend – which generates 7 figure revenue now – with little capital and no outside investment to start. He says the following about establishing a business budget:

“When you start your and self-fund your own business, every expense comes out of your own pocket. It’s critical to keep expenses at an absolute minimum when you are starting to give yourself the longest runway of time possible to build your business. It’s all about cash flow, and the less money you have going out, the longer time you give yourself to build your revenues. Starting off lean can also lead to better expense control as your business grows, as it starts you off with the right mindset on minimizing expenses.”

Make a savings plan

When it comes to initiating a business, business owners understand that it takes patience to succeed. While saving multiple years’ worth of living costs may be impossible, it’s a good idea to set aside some funds to meet personal expenses while concentrating on your business.

If you’re merely beginning up with a side hustle while working a full-time job, now would be the right time to try saving so you’ll be prepared when the time comes.

Pay off your existing debts as much as possible

Running a business necessitates considerable financial commitment, particularly in the early stages. You’ll need to get a business license, form an LLC, and buy other startup supplies and equipment. You must have a good amount of cash in hand as capital and maintain a good cash flow monthly.

But you won’t be able to do so if you’re drowning in debt. So, you need to reduce your financial liabilities and pay off as much debt as possible. Make a strategy to pay off your highest-interest debt first, then work your way down.

Basically, you need to control your high-interest debts, such as credit card debts or payday loans. These two types of debts can hurt your finances badly due to the revolving high interest. To deal with them, you may opt for various debt relief options. You may also ask for professional help and get a credit card consolidation service or payday loan debt solution as and when required.

When you’ve paid off a debt, put the money back into your budget or save it.

Consult a tax advisor

You will be accountable for filing your income taxes as a business proprietor. People usually become pretty stressed and confused when they file their taxes for the first time.

You may consult a CPA who specializes in tax preparation for freelancers. He/she can give you expert tax guidance, tools, and services to monitor your costs and revenues during the year. He/she may assist you in calculating your quarterly tax bills.

It’s crucial to stay in touch with a reputable tax specialist as soon as possible. This way, you may get reliable guidance on how much you must save for taxes monthly, how much you need to deposit as quarterly tax bills, and other issues. Working with an expert will be best to file your taxes for the year.

Conduct a field test

It makes good business sense to verify the market for your business concept before you invest all of your money. Before diving headfirst into the firm, get reviews from the target clients through prototypes, promotional surveys, or even a preliminary product release. Sometimes, a business’s best financially wise approach is to postpone starting until financial viability can be demonstrated.

About The Author: Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.

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Source: Smart Hustle

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