The vast majority of entrepreneurs use their savings to start a business. Of course, many are thinking of using other solutions or sources of financing: bank loans, non-reimbursable funds, various investors. But these are either very difficult to obtain for a start-up company (in the case of bank loans), or involve certain constraints that nullify flexibility and freedom of movement / decision – essential for a business in the start-up phase (in the case of grants), or reduce the share held in the company and / or in profit (the case of investors).
Under these conditions, what you have learned and applied for managing personal finances will help you in your business as well. So, if you get to the point where you need help, don’t give up and don’t let the lack of funding discourage you.
Below are some tips and rules for managing personal finances, which will prove useful enough when it comes to growing your own business.
Money management can be a difficult activity in both personal and professional life, which is why budget preparation becomes essential. Not only can you analyze your monthly income and expenses, but you will also be financially prepared to deal with unforeseen events, such as unscheduled expenses or investment opportunities.
You can manage both personal and business expenses by following these simple steps:
- Estimate the revenue the business will generate. It starts with the quantity that can be sold and the price that customers can reasonably pay. Take competition into account. Be reserved in estimates.
- Calculates the running costs of the business. These include everything from rent, payroll and office supplies to the interest you pay each month.
- Calculate the taxes and fees you have to pay. It is important to calculate these amounts to ensure that you always have money to pay taxes.
- Calculate the remaining profit. Only from this moment you can make the decision to offer yourself a fixed monthly income that can be easily budgeted.
Keep the degree of indebtedness under control
The debt / income ratio is generally considered a means of assessing personal finances, comparing the debts you have with the income you generate. Banks use this indicator as a way to estimate your ability to manage your monthly payments and repay your borrowed money.
There are basically two ways to reduce the debt / income ratio:
- Reduction of monthly debts
- Increase in monthly income
Of course, reducing debt every month can be difficult. One way to do this is to determine, from the beginning, what your business needs and wants are. For example, you can rent new office space instead of buying it. You can even outsource some of the work instead of hiring full-time staff.
To increase your income, you can look for more sources of income. While starting your new business, you could get involved in other paid activities that can earn you money to pay off debts.
Create a reserve fund
If your income is not constant or you often have unforeseen expenses, a reserve fund is required. Not only can you make monthly payments on time, but you can also keep your business moving in times of need.
The money you set aside is the amount left after you have covered all the expenses of running the business. It is good to have a fund to cover operating expenses for at least three months, or, ideally, for one year. That way, the money will be there whenever you need it.
Ensure what is valuable to your business
On a personal level, you definitely have different insurance policies to help you in case you go through an unpleasant situation: life, health, home, car. The same goes for a business. There are many business insurance policies, such as property insurance or professional liability insurance, that help you protect your business.
Analyze and compare market offers
When you want to change cars or look for a new home, you’re not going to just buy the first item you see, are you? The first thing you will do is compare different offers. But when do you want to take out a bank loan? You will definitely look for and analyze several offers before making a decision.
You need to do the exact same thing for your business. Whether you choose an office space, new equipment or a bank to work with, it is good to compare the terms, conditions and price to get the best possible offer.
Managing finances requires a lot of work. Just like a business. There is no shortcut to this. All you have to do is be consistent and work hard. That way, you and your business will definitely be on the right track.