There is a pretty big learning curve when it comes to owning a business—no matter what you know going in, experience will ultimately be the best teacher. But, this doesn’t mean you should be lax about learning all you can as quickly as you can to minimize issues. This is particularly true when it comes to finances. How you manage your money can make or break your new venture, and you want to make smart choices as much as possible. Here are just a few tips for becoming more financially savvy.
Be Conservative Paying Yourself
Once the money starts coming in, and you are able to cut yourself a check on the regular, it can be tempting to ‘treat’ yourself with a fancy vacation or an expensive new toy. This isn’t to say you should not spend any money on pleasure, but for those first couple of years, it is a good idea to just pay yourself enough to cover your minimum cost of living, and pour the rest back into the business to facilitate its growth. Think twice before any big, non-essential expenditures—the rush will wear off pretty quickly and you will probably be wishing you used that money for your business instead.
Turn to the Pros When You Can’t Do It Yourself
Running a successful business is not just about providing an awesome product or service, and knowing all there is to know about your particular industry. Managing your money properly is crucial, and will sink your ship faster than any other issue you have. If you are not fully adept at payroll, tracking your cash flow, etc…hire someone who is. Hire a bookkeeper, read more about how part-time CFO’s work, meet regularly with a CPA. Now, with that being said, it is important you acquire a basic understanding of accounting issues, even if the bulk of the work is left to someone else. No one will care more about your business than you, so it is crucial you have some knowledge in this area.
Don’t Spend Money Where It Isn’t Necessary
While it certainly takes money to make money, be smart about it. Don’t go spending it when it isn’t absolutely necessary. If you can get by with independent contractors for now, don’t take on employees. Don’t feel the need to create the best website that ever existed if the one you have right now looks attractive and is highly functional. Consider leasing equipment before buying outright. If you can work from home at the moment, don’t run to lease office space.
Keep on Top of Your Taxes
When you are an employee, taxes are a piece of cake—they are automatically deducted from your paycheck, you get your W-2, file a simple return, and perhaps get a refund. When you own your own business, it is a whole different ballgame, and this is not the area where you want to make mistakes, or fall into bad habits. The tax system is pay as you go, and self-employed people are expected to make estimated tax payments quarterly—failure to do so can result in stiff penalties. If you are not so savvy in this area, work with an accountant who can guide you. Don’t drop the ball here.