The number one reason many businesses and entrepreneurs fail is due to poor money management or understanding of finances altogether. In fact, lack of funding is commonly reported within the first year. However, poor money management can easily be avoided by taking the time to understand business finances and personal finances.
Here are five important money management tips to follow as a new entrepreneur:
Be Aware of and Keep Up with Taxes and Other Business Fees
Don’t mistake ignoring your taxes and other business expenses until the last minute. This can easily set you behind as you can easily rack up fees. Entrepreneurs and business owners must pay their taxes as they go. This means you will not need to pay your taxes quarterly and file annually instead of just annually like you may do as an employee. Employers pay these quarterly taxes for you, which can easily be missed as a new entrepreneur.
Keep Business and Personal Finances Separate
Get a business or separate bank account as soon as possible. This way, you know exactly what expenses to report when filing your annual taxes. You also want to be sure you are not spending any of your business income on personal projects. Not only that, it will make it easier to offer refunds should your business require it.
Keep Clear and Proper Records from the Start
Implement the right controls and tracking processes from the start. This means getting used to asking for receipts and storing important financial documents. It is easier to start with the right system and method than implement it later, as many transactions and other financial data can get lost.
Utilize Accounting Software or a Bookkeeper
For success, opt for accounting software like QuickBooks or Xero. These tools streamline the accounting process and make hiring a bookkeeper easier. If you are not an accounting professional, it is always best to use tools and engage those who have the experience to avoid mistakes.
Build an Emergency Fund
Your emergency fund should now include personal and business requirements for at least six months but even better if you can save for a year or two. This way, you can give your proper business time to build and be ready for any emergencies or mistakes should they happen.
Don’t let poor money management be why you have to go back to being an employee. With the right tips and understanding of what it takes to finance a business, you can be sure you make it past your first year and don’t become a statistic. All it takes is knowledge and a solid business plan to discover what it takes to fund your business idea and more.