82% of businesses fail due to money mismanagement. With many business owners failing at money management due to a lack of awareness, navigating finances successfully from the start is imperative.
For those looking to start a business in 2023, figuring out where to begin and how to best deal with finances can be intimidating and even worrisome — especially if you’re new to the business world. From the value of sticking to a budget to how one can minimize expenses while being realistic, here are just a few essential tips worth keeping in mind.
1. Why Everyone Should Have A Budget
Creating a budget is imperative for those looking to start a business while successfully navigating the financial aspects of a new business venture. As cited in one 2021 PR Newswire post, a report from Clutch (the leading B2B research and reviews firm) found that while most businesses have budgets, the smallest companies are more likely to go without them.
According to NerdWallet, creating a business budget can help your business maximize efficiency, establish a financial plan to help you reach your goals, point out leftover funds, and more. Additionally, it’s noted that creating a business budget can help in predicting slow months and keep you out of debt, thus underlining the critical role that a budget can play.
NerdWallet outlines six steps for creating a business budget, from examining your revenue to setting aside a contingency fund for unexpected costs and determining your profit (to name just a few key steps).
2. Protecting Your Finances
Starting a business is an exciting endeavor, though it’s essential to prioritize financial precautions to keep from going broke. In fact, one 2018 Entrepreneur article notes that research has shown that those who kept their day jobs when starting their businesses were 33% more likely to be successful than those who didn’t. “Leveraging your full-time job in the early days of your business allows you to build on firmer financial ground, increasing the likelihood that your enterprise will last and thrive through the initial stages,” notes the article.
In addition to investing in insurance, those who opt to form a Limited Liability Company (LLC) will benefit from advantages like asset protection. A Forbes Advisor post highlights the value of this, noting that under an LLC, a business owner’s personal assets can be protected from business debts and lawsuits against the business.
When creating a budget for starting a business, it’s necessary to note that those who are planning to form an LLC can wind up spending anywhere between $40 and $500, depending on the state that you’re in. Additionally, while many may ask questions such as how long does LLC approval take, it’s important to note that the time it will take will vary depending on aspects such as the state where you form the LLC, whether you do so online or by mail, and whether you choose an expedited option (if available).
3. Minimizing Expenses
Starting a business can be expensive — on average, startup and first year costs often fall between $30,000 and $40,000. However, it is possible to start a business with an initial investment of $1,000, $100, or even nothing, explains smallbiztrends.com.
How much money you’ll need will vary based on various factors (such as whether you plan to do everything online or start a brick-and-mortar business), though minimizing your expenses can be a great way to reduce costs when starting out. One Forbes post discusses several worthy strategies for lowering startup costs, from buying used equipment, leasing in instead of buying, and only hiring who you need — to highlight just a few.
The post further emphasizes the value in making smart investments, such as insurance. While this can often seem unnecessary for new businesses, the article points out that insurance “may be one of the most important expenses in your business, providing you with financial protection in a number of areas.”
4. The Reality Of A New Business
Planning is vital when launching a new business, particularly regarding financial aspects. According to one 2017 Inc.com article, this can be achieved in several ways, including separating your business and personal accounts and diversifying your income. It’s also advised to plan for ‘rainy months’ rather than ‘rainy days.’ Matt Murawksi, a financial planner at Goodstein Wealth Management, explained, “Most of the time it’s not regular income so it’s important to budget out finances to draw out from savings in the leaner months.”
Keeping the future in mind when setting aside money for growth opportunities is another way new businesses can effectively plan ahead. “A small business that wants to continue to grow, innovate and attract the best employees [should] demonstrate that they are willing to invest in the future,” says Edgar Collado, chief operating officer at Tobias Financial Advisors.
In doing so, Collado points out that while customers will appreciate the higher level of service, employees will also enjoy the investment in the company and their careers. “And ultimately, you will create more value for your business than if you were just spending all your profits on personal matters.”
Launching your own business can be as stressful as it is exciting, especially for those who worry about successfully navigating financial matters. However, by making it a point to protect your finances, minimize expenses where possible, and create a budget, you can get a good start in your business endeavors.