I came across an article today that I really wish I had written. In just a few paragraphs Siu Ling Hui sums up the first steps every new business owner must do to provide a strong financial foundations for their business.
She says in her article, Building a Sound Financial Foundation for Your Internet Business ,
I have seen many young fast growing businesses falling over because they didn’t have sound financial management practices in place. Ironically, it is when rapid business growth happens that the financial cracks emerge.
read the rest of the article
In her article she recommends three must dos:
1. Hire a good accountant or bookkeeper before you earn your first dollar.
I cannot stress this enough. Too many new business owners make costly mistakes because they just didn’t know. A good accountant will help you through the maze of government regulation and provide advice that will help your business be more profitable. Almost without exception a good accountant will save you money.
2. Separate your business and personal finances.
You must have a separate checking account and separate credit card for business. Doing so is more professional and will give you clarity in your finances. Also, if your business is ever audited, your personal finances will not be included in the audit.
3. Manage cash flow.
Cash is king. Cash is the lifeblood of your business. Without cash or available credit your business cannot function. Good cash flow planning will allow you to plan for the ups and downs in your business and insure that you will be able to sail through the inevitable downturns in your business.
These three simple steps will insure that your business has a strong financial foundation and go a long ways towards insuring the success of your business.
I started my first business during a recession, and now, during this recession I am starting another one.
I think recessions are the best times to start a new business, especially a service business, and I am going to quickly tell you why.
#1. Rents are cheap.
You can tell yourself all you like that your clients don’t mind that you work out of your home, but I have found I get more respect, and more money from my clients when I have a professional business office. Right now commercial vacancies are high, and you can find good office space at bargain prices.
#2. Help is cheap.
Sometimes you just can’t do it alone. With unemployment at an all time high, it is easier than ever to find talented, qualified people to help you out. They are also willing to work on a temporary, contract basis, so when I don’t need them, I don’t need to pay them.
#3. It seems that everyone is willing to bargain.
I hate paying full price for anything. But often, vendors will say the price is the price. Recently I have been getting discounts on software and services just by asking. I try to give something back, and nothing talks like cash! My favorite line: Will you take $X for this if I pay you cash right now?
#4. You Have the time!
I was laid off from my job 3 months ago, and with unemployment over 11% where I live I probably won’t be getting a new job any time soon. It doesn’t take long to look and see that there are no new jobs I can apply for. So now I am using my considerable amount of spare time to get the new business rolling.
Starting a new business is always fun and exciting! I should know. I have successfully launched 3 businesses and I am working on my fourth! But before you get carried away with the rush of starting a new venture, ask yourself a few questions.
#1. Is There a Market For My Product or Service?
Is there a market for your product? You may love it, but does anyone else? Can you convince people to part with their hard earned money? Check your competition. Is there lots of competition? Then how are you going to make your product stand out. No competition? That may be because you are the first, or it may be that there is no market for your product.
#2. Do I Have Enough Money to Get Me Through the First Year?
Do not expect to become an overnight success! It does happen, although it is rare. Starting a business can be very expensive. Just getting the word out about your product can burn through a lot of cash. Make a financial plan, assume almost no income for the first year, and make sure you have enough to cash to carry you through. Many businesses that fail, would have eventually succeeded if they had enough cash for their launch period.
#3. Do I Have a Plan?
Or maybe even two or three. You could have a marketing plan and a financial plan, but at the very least every business should have a business plan. It does not need to be complicated or long, it can be just a page or two, but it should be in writing. What are your goals for your business, and how do you expect to achieve those goals? How do you see your business one year from now, how about ten years from now?
#4. Who are my Advisers and Mentors?
Do not be a lone ranger and try to do everything yourself. Find a mentor who can give you good advice, and give a different perspective on your business. Find a tax adviser, someone who does more than just fill out tax forms. An excellent tax adviser will help you maximize the tax savings of your business, and will most likely save you more than their fees. Good legal advice will also save you money over the long term.
Answer these questions and you will be ahead of the game when it comes to starting a successful business.