Effective money management is an important attribute that every entrepreneur must pick up along the way. Being financially savvy allows you to stretch a thin budget and convert it into visible growth and tangible assets that, in turn, can be used to produce more spendable capital. While effective budgeting and money management aren’t skills you can learn overnight, it’s certainly possible to consciously practice them and turn them into habits over the long run. Here are five tips to becoming a financially savvy entrepreneur.
Allocate Your Cash in Different Areas
You have to be financially prepared for different outcomes. Putting up some cash cushion to fall back to in case something goes awry is a smart way to survive even the worst of financial calamities. Put a predominant amount of cash into your company’s assets but make sure to set aside some for outside investments and emergency funds. Keep in mind you’ll need a much larger financial cushion if you have no other source of income.
Draw a Line Between Personal and Business Expenses
Keep your personal and business expenses separate. For tax purposes, remember that your business expenses are deductible from your business revenues. The more deductibles you can list on your tax report, the less taxes you’ll need to cough up. Many novice entrepreneurs, however, are overwhelmed by the seemingly complex process of dividing personal and business expenses when, in fact, it comes as simple as opening separate bank accounts for business and personal use.
Understand the Fundamentals of Cash Flow
Being a responsible steward of your business’ cash flow is perhaps the most important role you’ll be assuming amidst your entrepreneurial ventures. The only actual reason for why a business fails is because it runs out of capital. Thus, it only makes sense to govern your cash flow with utmost vigilance. Where does your cash come from? Where is it being invested? If you cannot clearly answer these questions, then you aren’t responsibly managing cash flow.
Simplify it With Technology
Apps that track business expenses, file tax reports, and manage account statements have now become a staple not only for businesses but households as well. Accounting software that’s simple to navigate and comes with a robust set of features can be an invaluable long-term investment for your company. Of course, for those with budget restraints, you can always try out free financial tools you can download on the web.
Get Insurance Where Possible
Business insurance is commonly forgone for the temporary savings. In any type of business, however, there is always risk involved and scenarios that could potentially bankrupt your business. Having insurance, such as disability insurance, cushions the financial blow of such scenarios. Disability insurance covers you in the event that you are unable to continue generating income due to a disability.
Every day, entrepreneurs encounter dozens of scenarios where they can display their financial acuity, from deciding which supplier or manufacturer to use to identifying which purchases are a liability or asset. Consciously practice the tips aforementioned in this article to become a financially savvier entrepreneur.
David Milberg is a financial analyst from New York City.