Welp Magazine
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A solid financial foundation can make or break a new business. Whether you’re starting a retail shop, an online business, or a service-based company, you need robust money practices to stand the best chance of survival and success.
Whether you consider yourself a financial guru or not, here are some key tips every new business should keep in mind:
Surround Yourself With Experts
You can be a sole trader, the only person working in your business, but that doesn’t mean you have to run your business entirely by yourself. Surround yourself with financial experts in your area to help you make the most sensible decisions for long-term growth and success.
For example, if you’re based in Melbourne, Australia, consult a tax accountant in Melbourne as well as other financial experts, like financial advisers. They can provide guidance and advice when you need it the most.
Create a Clear Business Budget
Thirty-eight percent of new businesses fail because they have exhausted their cash reserves and can’t secure more capital. Creating a clear business budget can’t guarantee success, but it can give you more insight into your operational costs and how much you need to earn to cover them.
Before your business gets off the ground, develop a business budget that outlines the following costs:
- Startup costs, including licenses, marketing, and equipment
- Monthly expenses, such as utilities, salaries, and rent
- Variable costs, such as business stock and shipping
Your accountant can help with this process and recommend useful budgeting software.
Separate Your Personal and Business Finances
Business owners who initially start their ventures as hobbies can fall into the trap of combining their business and personal finances. After all, not everyone intends to turn their passion project into an official business.
However, as soon as you launch a business, make separating your personal and business finances a priority. Doing so can make it easier to file your taxes and perform bookkeeping tasks. If you have an LLC or corporation, it may also offer legal protection.
Once you have separated your finances, consider applying for a business credit card to build credit and track your expenses.
Know When You Break Even
Many business owners get into strife because they don’t know when they break even. Not knowing this information can mean you operate at a loss until you end up unable to cover costs.
From the moment you spend and earn your very first dollar, learn when you’ll start making a profit. You can use this formula:
The Break-Even Point = Fixed Costs / (Sales Price Per Unit – Variable Cost per Unit)
When you have a figure, you can use it to evaluate your business health, forecast profits, and set pricing.
Use Accounting Software
Most accounting professionals emphasize the importance of having accounting software to run a business effectively. Accounting software can increase efficiency, enhance decision-making, improve accuracy, and free up your time and resources.
Better yet, your accountant can use your accounting software to assist with your financial matters.
Prioritize Long-Term Financial Planning
Being a new business involves a lot of ‘here and now’ planning. You can be so busy getting your business up and running that you don’t prioritize long-term financial planning. Yet, it can be just as important as planning for the present moment.
Start building an emergency fund and setting financial goals, such as hiring staff, expanding locations, and investing. You can also plan for retirement.
Starting a new business is exciting, but it can also be stressful if you don’t prioritize its financial health. Focus on these key foundations above and set yourself up for future success.
