5 Best Approaches to Effectively Handle Your Finances as an Entrepreneur
When you endeavor into the world of entrepreneurship, expect to deal with money a lot. As an entrepreneur, you have to manage the operational costs of your business. When the business makes a profit, you need to save and re-invest that too, not just to sustain the company, but also to enjoy the opportunities for growth and expansion.
From the entrepreneurial perspective, here are the top approaches to efficiently handle your business’ finances.
1. Budget for Variable Income
The thing about being a business owner is that income is never consistent. Some months you earn more, other months you earn less. Since your earning is unpredictable, make sure to cater your budget for a variable budget. You want to save as much as you can when you’re earning more so you have enough funds to cover the deficit when you’re earning less.
2. Keep Your Personal and Business Accounts Separate
One of the best ways to organized with both your personal and business finances is to keep them separate. Merging them together can lead to financial chaos because it can be difficult to track personal and company expenses and even more challenging when it’s time to file your tax. Open separate banking accounts for your business and use business funds for business alone, personal funds for personal needs.
3. Track and Record Your Expenses
If you’re already tracking your personal expenses, you should do the same with your business expenses. Tracking and keeping a record of your expenditures allow you to carefully analyze how much your business is making and losing, as well as identify key areas where you tend to spend so much. These records allow you to see the bigger picture of your business cash flow so you can make the appropriate adjustments especially when you happen to be in a month when you have huge expenses but low income.
4. Take Advantage of Automation
As an entrepreneur, you’re probably busy with a lot of things. You’re talking to customers, fulfilling their orders and then you need to create a budget and pay your suppliers. The bills could easily get lost in your mounting responsibilities.
Fortunately, you can make sure that bills are taken care of while you take care of your business. The keyword there is automation. Automate all if not most of your bills so you can work on your business without worrying about missing payments and incur penalties.
5. Build a Cash Reserve
The cash reserve and emergency fund work in a similar manner. The emergency fund is used for urgent personal expenses, while the cash reserve is intended for your business’ critical costs. Since your income as an entrepreneur is unpredictable, you want to save at least five percent of your income each month to your cash reserve. The reserve will act as a buffer should you encounter lean months and a surprise expense comes up.
These are just five of the fundamental ways of managing your money as a business owner. You may find it a little challenging at first, but if you’re hands-on to your business, you’ll learn the ropes later on, and things will get easier. Just put these five basic principles at the very core of your business financial planning, and you should be off to a good start.