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Business Cash Management

Let’s talk about how to manage cash at the very start of a business and prevent financial mistakes that start-up entrepreneurs make.

Many aspiring entrepreneurs make common mistakes in cash management at the very start. For many of them, this becomes the fatal mistake that leads to the fact that the business is closed. We have summarized the recommendations of financial Michigan consultants into a few simple rules that will be useful to any start-up business.

Rule 1: Separate personal finance from your business

Even experienced entrepreneurs do not always adhere to this rule. It is important to separate cash flows when buying things necessary for business and personal use, cash for entertainment expenses and paying for dinner at a restaurant with friends.

Most often, this situation occurs when an entrepreneur works alone. “What’s the difference? Everything is taken from one pocket and then goes there! “Formally, yes, because you are investing personal funds and taking profits for personal needs. However, if you do not keep separate records, you cannot correctly assess the work of capital in your business, analyze costs, predict costs worse and increase the risk that you will not even notice how the financial difficulties of the business will become personal.

Rule 2: Keep your costs as low as possible

If you are starting a business from scratch or even if you have some kind of start-up capital, you should first only spend cash on what is necessary to get your project up. If you are making a relatively new product or service, do not forget about the principles of “Lean Startup”: make the simplest version of the product or service that reproduces your idea just as long as it takes to assess the demand and adjust your idea. If you start a typical business with a predictable (as you think) cost structure and payback period, do not forget that conditions are always different. Create the simplest and cheapest infrastructure for the first time to assess your options.

Learn to receive some services for free or in barter. More often seek help from your business and personal dating network, look for great deals, bargain with suppliers, look for cheap promotion channels. Probably, a little later, this strategy will not be very justified, but at the first steps, you can attract the first buyers with a minimum cost and get an important experience. If this experience is unsuccessful, it would be good if it costs as little as possible.

Starting a business is not the time for high wages, unnecessary staff expansion. Your ambition will push you to do better than the competition at once, but this can lead to the fact that you bury your first business with a heap of costs before customers know about your benefits. Try to compete for the first time on a low cost and unique service.

Rule 3: Keep management records

Record all your expenses and incomes, conduct both planning and accounting. Train yourself to do this from the beginning. Divide expenses into core activities, payroll, marketing (customer acquisition), economic activities and taxes. Divide income from main activity and related (for example, partner payments). Understanding the structure of your business finances should be formed from the first days. This will allow you to run your business based on specific numbers.

Rule 4: Plan your expenses and income

One of the most important components of the business as a whole is the budget. Many aspiring entrepreneurs do not understand that it is possible to budget without a flow of clients and many items of expenditure. However, not having a financial plan and the most general financial business model is the same as doing a business without a goal. Analyze the market, your opportunities at the start, make a forecast of income and expenses and start doing business according to this forecast. Your very first prediction will most likely turn out to be wrong and will require revision very soon. It’s not scary. At first, your forecasts will require regular adjustments, but over time, you will find the market and learn how to manage the leverage of the business so that financial plans are fulfilled. A company that has learned to plan well and fulfill its plans is stable in the market; it is much easier for it to get investments or a loan for development.

In addition, do not forget about the large expenses that may await you in the future. This applies to taxes and deferred liabilities. In addition to budgeting, mark important financial events on your billing calendar.

Rule 5: Monitor cash flow regularly

Cash flow is the circulatory system of your business. At the first stage and in the process of growth, it is important to constantly monitor what is happening in your account. Until your business model is fine-tuned and undergoes constant changes, it is important to keep track of key numbers – total income, total expenses, profit for the period (per day, week, depending on the number of transactions per unit of time) and account balance. In the first period, it is important to learn how to manage cash balances. If you see that your account is running out of money, stimulate early payments from customers with discounts or reallocate resources to get payments from existing customers faster. In addition, try to work with clients on a prepayment basis, and settle settlements with suppliers upon completion of work.

Rule 6: Improve your financial literacy

Doing business is a constant stream of financial management solutions. As your business grows, you will have to make more and more important financial decisions. Even when a competent financier appears in your team, you still need to be able to speak the same language with him/her, to formulate business objectives in the language of financial figures. That is why, pay attention to improving your financial literacy from the first steps of your fledgling company – read books, watch webinars, attend seminars and communicate more with more experienced small business owners about financial management.