By Mashum Mollah
You’ve got a great idea for a new business venture, and you’re beyond excited to begin turning your vision into reality. That’s understandable, as the post-pandemic marketplace is fertile ground for entrepreneurs to start new endeavors.
However, before you launch your first company boat into uncharted waters, conduct a thorough examination for potential leaks. Finance is one of the biggest challenges your vision will encounter. You’ll want to commit time and energy to make sure you don’t run out of money before your new idea takes off. Listed below are seven guidelines to consider.
1. Prepare and Maintain an Operations Budget
It’s entirely possible that working in financial spreadsheets is “not your thing.” That’s no excuse — you’ll either have to become comfortable with them or seek help from someone who is. Not preparing and sticking to a budget is a surefire recipe for entrepreneurial disaster.
Budgets are far too often viewed as an instrument of financial bondage, but the truth is just the opposite. Having a realistic, workable budget frees you to say no to proposals that look promising but don’t fit your overall business plan.
Every budget should be prepared with at least some level of flexibility, of course. Still, every successful business owner will tell you that their budget saved them from making bad financial decisions more than once. At a minimum, your budget will slow you down as you consider unforeseen spending challenges.
2. Be Generous With People, Stingy With Operating Expenses
If you have a great business idea and treat your people well, they’ll work out of your garage until you make it big. That’s not to say that facilities and amenities don’t matter — they do. But people will tolerate a lot of inconveniences if they truly enjoy working for you.
Few things will kill your new business more than employee turnover. So don’t wait to demonstrate care. You might launch your company with a small business 401(k) as a perk to show employees you’re invested in their future. Buy meals for your workers as an inexpensive means of letting them know you appreciate their loyalty.
Many first-time entrepreneurs make the sad mistake of investing in appearances rather than people. It is better to hire fewer people and compensate them well. Impressive office space (and the accompanying overhead) can wait.
3. Automate Your Payroll and Invoicing
Speaking of compensation, one of the best ways to ensure employees and vendors get paid on time is to automate payroll and invoicing. Unless managing employee payroll, taxes, accounts payable, and invoicing is your thing, you’ll spend more time than you’d like taking care of these core business functions.
Fortunately, today there are software-as-a-service companies that can tackle these time-consuming business functions. True, these services represent another line item on your monthly budget. However, the cost vs. return on your time will be well worth it. Don’t forget that your time (and mental well-being) carries a price tag, too.
4. Protect Yourself From Fraud
The path to launching a new business venture is often grueling and requires flexibility, but those demands should never eclipse security. As you begin to fund your new enterprise, set up separate bank accounts and restrict access to them. If your financial institution offers advanced forms of fraud prevention for business owners, sign up for it.
Thirty-seven percent of business fraud is perpetrated by internal actors, so vet employees carefully. Conduct background checks on anyone employed by your business, even if you’ve known them since high school. Keep computing systems protected with strong passwords and robust security protocols.
Once your new business has grown to the point that you can hire a chief of security, you can relax. Until then, you need to stay vigilant. Don’t allow your great idea to get delayed or scuttled altogether because you didn’t institute the right security practices.
5. Don’t Get Caught Off Guard by Taxes
Let’s face it: Paying taxes is not the least bit sexy. And yet, more than one promising new business has been torpedoed by failure to anticipate and plan for the timely payment of all relevant taxes.
Unless small business taxation is one of your personal areas of expertise, this is not the place to wing it. Plan to hire a professional with a proven track record. Small businesses can run into plenty of tax problems in a fairly short amount of time. And tax penalties do not get better with age — they get much worse.
Don’t launch your new venture until you have this vital aspect of operating a business firmly in hand. File your taxes on time, every time. Don’t cut corners or hide cash transactions. Above all, don’t kid yourself into thinking that it’s better to ask forgiveness than seek permission.
6. Keep a Sharp Eye on Your Credit Score
Many financial institutions will require a minimum personal credit history score of 600 and a minimum business credit score of 75 before providing financing. Credit scores are adversely affected by numerous things. Among them are high debt levels, history of late payments, charge-offs, accounts turned over to collections, past financial judgments, and dust-ups with the IRS.
Fortunately, there are financial services available to help you clean up credit issues and help raise your score. If your rating is currently not up to snuff, don’t despair. Keep working on your business plan and work steadily to improve your credit rating as a background activity.
As you interact with potential lenders, the worst thing you can do is to attempt to obfuscate your credit issues. Transparency and stability will help move the needle in your favor.
7. Be Prepared to Encounter Financial Challenges
Many of us prepare for unforeseen expenses in our personal lives by opening and regularly contributing to a savings account. Surprisingly, though, many entrepreneurs start on the wrong foot by placing an inappropriate level of confidence in their business plans and spreadsheets.
Of course, planning documents should be meticulously researched and as accurate as possible before you start to rack up invoices. That said, it never hurts to have a backup plan just in case the ground shifts beneath your feet. Earlier this year, the cost of lumber soared unexpectedly, sending more than one home builder back to the drawing board to estimate construction costs. Do your business dream a favor and do your best to plan for the unplannable.
You want your business vision to make you money, so paying close attention to finances comes with the entrepreneurial territory. With these seven tips, you’ll be closer to making that vision a reality.
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