Jun 24, 2021 02:47 PM EDT
Taking the entrepreneurial route is a big decision. Though this route has a lot of ups and downs, but it allows one to pursue what they want to do. Be it creating a new product or creating a new concept, entrepreneurship offers a lot. The ever changing dynamics along with the day to day challenges makes it even more interesting.
For all new entrepreneurs, it is advised that they plan ahead as it will help them a lot to foresee what is coming up and be prepared for the newer challenges. Starting from the conceptualization of the business idea, creation of the business plan to planning the daily, monthly as well as the yearly course of action, planning is required in every aspect. Another important area where entrepreneurs need to plan is the finances. As entrepreneurs a lot of financial responsibilities are bestowed on entrepreneurs as along with managing their personal expenditure, they also need to manage the monetary requirements to run the business.
Here we present the top 5 tips for new entrepreneurs to manage finances better.
Understand the requirement: It is very important to first add figures to the requirement. Running a business needs capital and as entrepreneurs, one must have a clear understanding of the financial requirement to run the business. A projection of a minimum of 3 years will help to plan not just the expenses but also the growth. Not understanding or not having a clear picture about the financial requirement may pose a greater challenge in the longer run.
Be proactive: As entrepreneurs, one needs to be proactive about their finances. Entrepreneurship comes with bigger financial responsibilities so one needs to understand and keep a check from time to time, on how financially healthy their business is. Also, rather than following another business's financial model, one must adopt a customized financial strategy to optimize their finances, based on business strategy and goal. For new business ventures the initial years are pretty challenging due to the trickling revenues but mounting costs. But proactively managing and strategizing will surely help to sail through.
Implement a lean budget strategy: Budgeting will help a lot to mange the finances better as it will give a clear picture about the expenditure and how much portion of funds are allocated for each head. As entrepreneurs, one will not just manage their business finances but also personal expenditures. Here again, budgeting comes to a rescue, however, both should be maintained separately.
Along with the business expenditure heads, one needs to have a clear understanding of their own basic expenditures too like rent, utility bills, groceries and other basic stuff. Taxation, insurance and investments also need to be factored in the budget. Even when the revenues start coming in, lean budget strategies will help the venture to run on lower costs and thereby maximize the profits.
Plan to meet the rainy day: With no guaranteed income during the initial years, cash flows may be in a tight spot. One should be prepared for such situations as more than the fund shortage, it is lack of planning for such rainy days which can pose a greater challenge. Creating a contingency fund will ease the dry phase and help to keep the business running while one is looking for new clients, investors or newer business strategies. This contingency funds should be a part of the business plan from day one and it should be built over a span of time when the revenues are coming in. The amount of the contingency fund should be planned in a manner that it lasts for a duration of a minimum of around six months. Also, a proper plan as to when the emergency fund should be used and how it would be utilized should be laid out well in advance. A strict strategy will ensure that the funds last through the dry spell. It should also not be forgotten that once the dry spell is over, the contingency funds should be restored to meet other contingencies.
Security cover and investments: It is essential for entrepreneurs to get a security cover to meet unforeseen circumstances. Proper investment planning and implementation also helps to create security and meet financial goals such as creating a retirement fund or any other personal financial goal. Planning early helps in every aspect as it gives ample time to sort the finances and create a fund pool though investments and financial planning to act as a security cover. Getting an insurance or a healthy policy also acts as a security and provides a cushion to meet life emergencies.
The key to entrepreneurial success lies with proper management of finances. These tips will help new entrepreneurs to plan and manage their finances in an optimized manner.
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