Financial Management is a key factor for entrepreneurial success.
It is important for new entrepreneurs to know how to control their finances, otherwise they can struggle along this journey.
When entrepreneurs start their own business, even if they are social entrepreneurs, managing their finance it is very important.
It doesn’t matter if your mission or vision doesn’t want to “ultimate focus on generating profit”, you need to have financial control.
If you don’t have the cash for the payroll, for software licenses, for rent, for utilities, etc., then there will be no business running.
This is not a discussion; it is a fact.
The question is, how do I start?
Here I give some tips for a better financial management, such as the control of your income and control of expenses.
This is not the ultimate guide, but I hope my experience can serve others from growing their business and specifically to have a better financial management.
As in other posts mentioned, there are different types of startups. Independently of the type, businesses need resources to start operating.
The difference is that some types of business will require greater starting investments than others.
When I started the family’s second branch store at my name, I didn’t have money to invest in the first furniture stock, so thankfully being member of a family business, I got the stock from the already established business.
Clearly one of the advantages of being member of a family business.
So, you can start getting resources from your family to build your idea.
In a more harder way, my mother started her entrepreneurial career by selling shoes.
She got the support as well from the family to start buying the first pairs, and as her sales were growing she had a bit of more capital.
She reached a point where she meets a furniture supplier who propose to start selling kitchens.
The supplier offered to give first the furniture, and she can pay after she make the first sales.
So, this is another way of financing, through suppliers.
Of course, in these two cases I am talking about small businesses.
If you are a high scalable startup, or aiming to be one, you must look for Angel Investors.
These tech startups require a bigger investment due to the vision they have of their development.
The risks are higher, but as well the return on investment could be as well higher.
This will be your starting point to run your business.
This initial investment will be the first push that you will need to get your first resources.
You can plan how can you spend the first investment.
Make a list of all your required equipment and compare with other suppliers if needed.
Try to get out more of your investment, and don’t worry, it doesn’t have to be a perfect plan.
You will be learning on the go, but it is always better to have the backup of the family, suppliers or investors, they can coach you.
Every cent that you earn and you spent will be an important decision to send your business to the sky or way down.
Now that you started the business you have the control.
At the early stages of a business it is hard to know how much income you will generate.
If your product is brand new, then it gets harder even if you did the market analysis.
As long as you keep up the development of your business and started the first sales, you can automatically start learning about what works and what doesn’t.
Don’t get desperate if you don’t see results in the first year, it is a learning you should do in this entrepreneurial process.
The first income that you generate it will be paying the fix expenses that you have to cover.
Don’t think that if you start watching how your invoices start growing, that will be dividends to get into your pocket.
This is one of the biggest mistakes that are done.
You have responsibilities first with your employees, suppliers, customers and investors.
If you want to see your business grown, reinvesting is the key.
Focus on learning what is generating you income, and work on growing it.
It is easier to manage a business that is generating constant income, than struggling on surviving because of bad financial decisions.
This topic is where the bad financial decisions are done, expenses.
The control of expenses in businesses is an activity that I suggest to do it carefully.
Not knowing what are you paying when, or to whom, or who you need to pay in the following 30, 60, 90 days can get of control if you don’t have an order.
If you consider personal expenses, with business expenses can also be a disorder.
So what are some things that you can start doing once you have a constant income or even if not.
Prioritize your expenses.
Make a list of what are the things that you have to cover first, and if you are struggling to generate income, then what are unnecessary expenses.
If you don’t consider yourself as a good financial manager, you can use the support of software for financial expenses.
Zoho Expense is an example of a software that can help you with the automatic process of controlling your expenses. You can have a quick control of your credit card expenses and have a record of your movements.
The advantage of software like this, is that it simplifies the work of forecasting and budgeting.
We live now in the era of digitalization, don’t hesitate on relying on different types of software that can help you on your business expenses.
Once you know the amount of income you got, what were the things you need to pay, then your profit will be another element to take care of to keep your sustainable growth.
Do you need more equipment, new IT, more employees, more stock, analyze what will be your future needs.
Listen to your stakeholders, and see what are your weaknesses.
There are some people who prefer a backup fund in case of business emergencies.
And this is important, because at the beginning you will not know exactly when your business will be running on a low season.
I recommend to keep a 5% as savings of the total profit, so that you can eventually have a source that you can use for future bigger investment or even to pay suppliers when you are running low.
It depends on financial management styles.
I hope this post help you to have an overall idea of things to consider.
If you consider it should be more in depth, or have more opinions, or questions, don’t hesitate to contact me.