This article was written for the ICBA by QuickBooks.
Here are some financial tips for aspiring entrepreneurs and franchise owners. It might seem obvious, but prior to embarking on any new business venture, you need to make sure that your personal financial house is in order. Here’s a to-do list to help you do just that.
1. Clear up existing debt
Substantial debt and limited cash flow can hinder your business success. Reduce what you owe before launching your next project. To determine how much debt you need to pay off, figure out your debt-to-equity ratio. (Tip: If yours exceeds 80 percent, it’s time to re-evaluate your financial plan.)
2. Invest in liability insurance
One of the most important types of insurance for small businesses is a general business liability policy, which protects your company’s assets and pays for liability in any claims, such as medical expenses, breach of contract, errors and omissions, and more.
3. Make sure you have enough startup capital
This may seem like common sense, but lacking sufficient funding is one of the biggest traps that entrepreneurs get caught in. You need to consider all of the costs of doing business, such as taxes, licenses, equipment and supplies, as well as a commercial lease, merchandise, and payroll. How much is enough? It depends. But, according to many trusted business sites, if you raise 18 months’ worth of funding, you need to reach your goals within a year.
4. Leave room for error
It’s easy to miscalculate your projected sales or budgetary needs, so have a Plan B for covering routine and unexpected expenses. For example, maintain a business savings account of readily available cash — enough to cover basic or emergency needs — in case your gross income or total outlay falls short of your forecasts.
5. Understand your tax obligations
Small-business owners should plan ahead to minimise the amount they pay in taxes each year. You may want seek advice from a tax consultant who can help identify what your monthly tax liabilities will be, what deductions you can take advantage of, and how you should classify your business from the start.
6. Take a few basic business courses
One way to ensure your business starts off on the right foot is to educate yourself about the various aspects of running a successful enterprise. Enroll in courses related to accounting, management, business law, communications, and web design.
7. Hire a skilled, trustworthy accountant
Accountants can be expensive, but the cost is well worth it to keep your books in order and your budget on track. A reliable accountant will show you where your money is being allocated, as well as expose any weaknesses in your financial plan.
These may all seem like logical steps in setting up a business, but sometimes it is simply bad financial planning that leads to the downfall of the start up. Hopefully these tips will help you avoid some of the pitfalls associated with starting an entrepreneurial endeavor.