One of the biggest challenges and constraints of launching a business is ensuring its financial success and making it profitable. If you are a startup or just a young entrepreneur, I applaud you – building a company is without a doubt one of the hardest things people aspire to achieve in their life. Starting a company is one hard part – managing and controlling finances are another.
Let us discuss some common financial mistakes and important tips youhould follow to ensure the success of your company.
First, you need to educate yourself on matters of financial management. If you are a starter, learn to read financial statements and how to interpret them. By reading financial statements, you will be able to know where finances came from and how many hands it changed. In a financial statement, there are four important details; income statement, cash flow management, balance sheet and statement of shareholders’ equity.
Learn to Interpret Financial Statements
The cash flow section analyses operating activities including investments and finances inflow and outflow. Balance sheet analyses information that relates to the company’s liabilities, assets and shareholder’s equity. The income statement looks at the revenue earned within a certain time. The shareholder’s equity looks at the amount by which a company is financed through.
Separate Personal and Business Finances
It is always wise to separate your personal and business finances. This involves getting a business credit card and then putting all related expenses on it to help you track your spending and keep you in control. You should also open a savings account that is dedicated to your business.
As an entrepreneur, you need to cut expenses as much as you can without interfering and hampering customer satisfaction, especially if you’re a small business. Every business will always endure fixed and variable costs. Fixed expenses have to be met irrespective of the financial position of your business. You can save a considerable amount of expenses by using free online software that helps to automate common operations in your business.
Limit Fixed Expenses
As a business owner, you should limit your fixed expenses from the very beginning. Keeping your expenses very low is key to achieving your business success. You don’t need to operate in a huge office in the heart of the city where you are served three meals a day. Operate as thin as you can, so that you can allocate the bigger part of your capital to grow. Many startups focus to spend on the wrong things and they end up financially stranded in the next couple of years after launch. AS a startup, you should remain optimistic but also prepare for the worst. You can be hit with very challenging lawsuits that can take a substantial amount of your finances.
Monitor and Measure performance
It is very important to keep tabs on the movement of your business money – especially if it involves large sums. Keep looking and analyzing your company’s financial performance in leu to past financial statements. Be aware of all aspects that may force you to make bad decisions. If possible, hire a professional accountant or financial analyst to help you determine where your business is.