Before you make money, you usually have to spend money. Getting a new business off the ground is a major financial undertaking, and while being smart about your finances is important no matter how long you have been in business, it is particularly crucial when you are first starting out. Poor money management will eat away at your efforts over time, and before you know it, you will be closing your doors without ever fully realizing exactly where things went wrong. Here are just a few tips to help get your finances in good working order in the beginning.
Don’t Spend More Than Necessary
Before you make any sort of purchase for your business, think long and hard whether it is absolutely essential at this juncture. Do you really need an employee right now, or would an independent contractor suit you just fine? Do you really need that office space right now, or will working out of your home be just fine for now? Do you really need to be paying for 10 different marketing strategies right out of the gate, or would it be better to just focus on a core few right now that would really help you connect with your target market? Might it be a better idea to lease some equipment for now, instead of fully stocking your business with all brand new, shiny things? It is easy to get carried away with the spending at first, but be careful.
Stay on Top of Receivables
If you are the type of business who is operating on credit, the importance of staying on top of your accounts receivables cannot be overstated. Having worked for a collection company in the past, I was always quite surprised about how long these people would wait before pursuing late payments, and the amount of money owed to them that was just still out there. Keep track of your accounts, and go after late payments immediately; you don’t have to be all mean and aggressive about it, but you must address it. If clients realize they can sit on your accounts without you saying a word about it, guess who will be moved down the list when it comes to cutting checks? Develop a set process to handle late payments that is applied each and every time. Don’t be haphazard about your collection efforts, or your cash flow will take a major dive. And poor cash flow will kill your business.
Optimize Cash Flow
Keeping your cash flow nice and steady is crucial, and we just covered one important aspect of it that deserved its own section. But, there are many other ways to accomplish this goal as well. If you have the type of business where you are ordering supplies from wholesalers, in the beginning you may find yourself in the position of not having enough capital to fulfill orders, and less orders means less cash. There are companies, such as this Chicago commercial finance one, that offer funding of purchase orders, with their fee being a small percentage of the sale. You also have companies that will buy your receivables outright, allowing you to get the cash right away, instead of waiting for customers to pay you.
While it might feel good to pay bills as soon as possible, you might consider holding off until they are due to make the most use of your money. See if you can negotiate payment terms with vendors to better match up with receipt of payment from customers. Keep a close eye on your inventory so you are not unnecessarily ordering items you don’t need at the moment; evaluate whether you may be better off getting rid of certain products completely, to focus more on the ‘’best sellers.’’
Seek Professional Help when Necessary
In trying to save money, you may be reluctant to reach out to any sort of ‘’consultant,’’ but talking to people who know more than you about the financial aspects of running a business will save you a lot of money in the long-run and it is a worthy investment.