5 essential tips for entrepreneurs on looking after their finances

Entrepreneurship brings loads of benefits. You set your hours, are your own boss and have no fear of being redundant. With such benefits a business offers, many people dream of establishing their own company. Their dreams are coming true as the number of small businesses is rising in the UK.

A business life is not a laugh of barrels. A lot of challenges will get in your way, and all of them will have a direct impact on your cash flow. No business can survive without sufficient cash. Many small companies were rocked during the pandemic. Cash flow became the biggest concern that led to shutting down of many. Some lucky entrepreneurs stood the test of time and managed to flourish during the economic recession.

A good entrepreneur is one who comes off as a strong and motivated leader in tough times, which is not feasible without strategic planning and decision.

Essential tips for entrepreneurs on looking after their finances

To smoothly run your business, you need to promote yourself, get customers, employ people, and, above all, stay on top of your finances. Here are the key tips to be in control of your finances:

• Have a buffer

“Ambitious entrepreneurs” are always willing to take on high risks for above-average returns, but taking on too much risk can be detrimental. The market is subject to speculations so that real situations can be absolutely opposite to your forecasts and you end up bearing losses. A cash reserve will “cushion the blow” from losses you bear due to low or nil returns.

Cash reserves are also aimed at protecting your business in the following scenarios.

• Your product has lost demand.
• Your customers are leaving you.
• Economic recession has affected the demand and supply of your products.
• Sales have dropped.
• Your new product did not pick up.

It will be supremely difficult to manage payroll when sales have dropped without a cash reservoir. The business world is not suitable for slow-moving people. You will have to “keep your eye on the ball” to streak ahead in the race of competition. The winner is one who identifies the opportunity before everyone else. A cash reservoir may also fulfil your funding needs to carry out your idea.

• Keep tabs on your cash flow

You may be under the impression that you have a good idea of how much cash is coming in and going out. But in tough times when your sales have dropped, you see your profit margins are compromised. You will need a regular influx of cash to meet your operation overheads. From payroll to your office rent, a lot of expenses are inevitable. A smooth cash flow also ensures smooth payments of a long term loan for a business.

Track all income and expenses	Check previous six months’ sales figure to know incomings. Note down all regular expenses.
Identify projected expenses	Any additional expense you are expecting, equipment and supplies and taxes.
Review your pricing structure	Set a monthly goal and evaluate if prices you charge are enough to produce profits.
Pay yourself first	Set aside a portion of your profits. Invest extra supply of funds to make more money.

In addition, you should factor in debt to protect your cash flows. Many small entrepreneurs are up to neck in debt. They borrow money to meet the starting cost without realising its implication on their cash flow systems. You should carefully analyse the impact of debt on your cash flow when you are seeking unsecured business loans for start ups.  Borrowing money is not a bad idea, but you should be realistic.

Ways to borrow money an affordable rates

Keep your personal credit report stellar	¬ Pay off your bills on time.¬ Keep your credit card utilisation ratio low. ¬ Maintain your debt-to-income ratio up to 25%.
Focus on your business credit report	· Take advantage of your relationship with lenders.· Develop a strong business plan if you are a start-up. · Show a consistent track record of profits if you are an established business.
Security	Put down security worth higher than the borrowing amount.

 

• Be prepared for misfortunes and lows

Illness and accidents can happen, and as a result of that, you may be out of action for days and weeks. Appoint someone who is able to take care of your business in your absence. Illness treatments are quite expensive. Make sure you have bought health insurance. Consider adding disability insurance as well. Insurance will help you stay afloat during medical emergencies.

Highs and lows are part of a business. At certain times, you will be facing some sort of challenges when your profits are too low. Make sure to have braced yourself to fight such conditions.

• Shorten the grace period you offer to your customers. It should not be more than 30 days.
• Talk to your creditors to see if they can extend your payment time. Take advantage of your good relationship with them.
• Cut back on your business overheads. You may have to let some employees go.
• Choose a smaller space to save money on rent.
• Outsource when in-house project completion costs you a lot of money.

Consult your accountant and financial advisor to reach a better decision.

• Make money from your profits

When cash flow is so strong, put your profits to good use. You should reinvest the additional supply of money in your business. It will pay off in multiple ways in the long run.

• You should train your employees. Encourage them to take up higher responsibilities and hone their multi-tasking skills.
• Buy advanced software solutions to rack your customers’ buying patterns.
• Invest in technology for the completion of automated tasks, so you and your employees can do something productive.
• Explore other areas of the market and identify your growth potential.

You should never sit on your laurels. Keep exploring and identifying business opportunities. It is a simple rule to grow in the fierce competition.

• Ask for help

It can be hectic to embark on your business journey alone but do not give up. Network as much as you can. Networking will let you know other people, befriend them and identify business opportunities. With networking, you can meet people who will be willing to invest in your business.

Take help of financial professionals when you are unable to choose the best funding option. They will help you know various funding options that suit your financial condition.

The bottom line

It is vital to look after your finances to ensure the smooth running of your business. You should create a buffer. It will help you stay afloat when your business faces unexpected situations. Maintain a positive cash flow so you can easily meet your regular business operation overheads.

Reinvest your profits to make money, and invest your time and energy in networking. Consult a business advisor to explore affordable funding options if you need money from external sources. They can suggest impactful ways to achieve your goals and overcome challenges. You will need a lot of patience to run your business. Make sure you do not become frustrated and give up due to mounting problems.