7 Best Financial Practices For Small Business Startups

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When​ starting​ ​a​ ​small​ ​business,​ ​one​ ​of​ ​your​ ​primary​ ​concerns​ ​is​ ​money:​ ​how​ ​much​ ​you​ ​are bringing​ ​in,​ ​how​ ​much​ ​you​ ​are​ ​spending,​ ​what​you are spending it​on,​ ​how​ ​are​ ​your​ ​revenue growing,​ ​how​profits can be​increased,​ ​so​ ​on​ ​and​ ​so​ ​forth.​ ​Your​ ​financial​ ​stability​ ​and​ ​cash​ ​flow are​ ​the​ ​lifeblood​ ​of​ ​your​ ​growing​ ​organization​ ​and​ ​knowing​ ​how​ ​to​ ​manage​ ​it​ ​well​ ​can​ ​mean​ ​the difference​ ​between​ ​consistent​ ​and​ ​long-term​ ​growth​ ​and​ ​stalling​ ​out​ ​after​ ​a​ ​few​ ​short​ ​months or​ ​years.

Perhaps​ ​the​ ​hardest​ ​financial​ ​practice​ ​for​ ​small​ ​business​ ​startups​ ​is​ ​swallowing​ ​the​ ​fact​ ​that​ ​it’s going​ ​to​ ​take​ ​a​ ​lot​ ​to​ ​try​ ​and​ ​compete​ ​against​ ​larger​ ​companies.​ ​Everything​ ​about​ ​your​ ​firm from​ ​your​ ​model​ ​to​ ​your​ ​products​ ​may​ ​be​ ​better​ ​than​ ​those​ ​major​ ​corporations,​ ​but​ ​simple cash​ ​flow​ ​puts​ ​you​ ​miles​ ​away​ ​from​ ​them.​ ​To​ ​help​ ​shorten​ ​this​ ​gap​ ​and​ ​get​ ​your​ ​business​ ​on​ ​the right​ ​trajectory​ ​for​ ​success,​ ​here​ ​are​ ​7​ ​of​ ​the​ ​best​ ​financial practices​ ​for​ ​startup​ ​companies​ ​to save,​ ​profit​ ​and​ ​grow.

7 Best Financial Practices For Small Business Startups

7 Best Financial Practices For Small Business Startups
Best Financial Practices Adopt By Small Business Owners (Image from Pexels)

1. Plan,​ ​Plan,​ ​Plan 

The​ ​idea​ ​of​ ​planning​ ​seems​ ​obvious,​ ​but​ ​you’d​ ​be​ ​surprised​ ​how​ ​many​ ​business​ ​owners​ ​come running​ ​out​ ​of​ ​the​ ​gate,​ ​excited​ ​for​ ​their​ ​new​ ​company,​ ​and​ ​quickly​ ​realize​ ​they​ ​went​ ​too​ ​far, too​ ​quick​ ​or​ ​in​ ​the​ ​wrong​ ​direction.​

​Calculate​ ​every​ ​step​ ​you​ ​take,​ ​not​ ​only​ ​from​ ​a​ ​financial​ ​and budgeting​ ​standpoint​ ​but​ ​also​ ​from​ ​a​ ​goal-oriented​ ​one.​ ​Having​ ​clear​ ​objectives​ ​each​ ​week, month​ ​and​ ​even​ ​year​ ​will​ ​keep​ ​you​ ​focused​ ​and​ ​prevent​ ​you​ ​from​ ​spending​ ​on​ ​activities​ ​that don’t​ ​pertain​ ​to​ ​these​ ​aims.​ ​You’ll​ ​spend​ ​less​ ​and​ ​spend​ ​smarter.

2. Don’t​ ​Expand​ ​Beyond​ ​Your​ ​Means 

You​ ​want​ ​your​ ​business​ ​to​ ​grow,​ ​and​ ​you​ ​want​ ​it​ ​to​ ​do​ ​so​ ​quickly;​ ​every​ ​business​ ​owner​ ​does.

From​ ​a​ ​small​ ​business​ ​perspective,​ ​it​ ​is​ ​especially​ ​alluring​ ​to​ ​expand​ ​quickly​ ​and​ ​make​ ​a​ ​serious push​ ​towards​ ​competing​ ​with​ ​the​ ​‘big​ ​guys.’​ ​But,​ ​a​ ​lot​ ​of​ ​startups​ ​that​ ​develop​ ​too​ ​rapidly​ ​find themselves​ ​over​ ​their​ ​heads.​ ​They​ ​don’t​ ​always​ ​account​ ​for​ ​the​ ​infrastructure​ ​and​ ​resources (not​ ​only​ ​money​ ​but​ ​also​ ​staffing,​ ​technology,​ ​time​ ​and​ ​other​ ​tools)​ ​that​ ​are​ ​required​ ​to​ ​handle such​ ​growth.​ ​Thus,​ ​they​ ​can’t​ ​adequately​ ​sustain​ ​or​ ​manage​ ​such​ ​an​ ​expansion​ ​and​ ​often​ ​need to​ ​scale​ ​back​ ​or​ ​scramble​ ​to​ ​put​ ​together​ ​the​ ​necessary​ ​resources​ ​to​ ​handle​ ​it.​ ​In​ ​either​ ​case,​ ​it is​ ​going​ ​to​ ​hurt​ ​your​ ​business​ ​financially.

3. Know​ ​When​ ​to​ ​Ask​ ​for​ ​Help 

Help​ ​comes​ ​in​ ​a​ ​lot​ ​of​ ​different​ ​forms.​ ​For​ ​some​ ​people,​ ​it’s​ ​easy​ ​to​ ​ask​ ​for,​ ​but​ ​a​ ​lot​ ​of​ ​times and​ ​for​ ​a​ ​lot​ ​of​ ​independent​ ​people,​ ​it​ ​is​ ​one​ ​of​ ​the​ ​hardest​ ​things​ ​to​ ​do.​ ​Asking​ ​a​ ​friend​ ​or family​ ​member​ ​to​ ​borrow​ ​some​ ​money​ ​during​ ​a​ ​particularly​ ​rough​ ​period​ ​or​ ​seeking​ ​out​ ​a​ cash advance​ ​or​ ​small​ ​business​ ​loan​ ​through​ ​a​ ​lender​ ​is​ ​certainly​ ​elicits​ ​some​ ​uncomfortable​ ​feelings.

But​ ​keep​ ​in​ ​mind,​ ​when​ ​you​ ​ask​ ​for​ ​help​ ​too​ ​late,​ ​it​ ​is​ ​damaging​ ​to​ ​your​ ​business,​ ​but​ ​also​ ​puts pressure​ ​on​ ​whomever​ ​in​ ​your​ ​family​ ​or​ ​circle​ ​of​ ​friends​ ​you’ve​ ​asked​ ​to​ ​borrow​ ​from​ ​to​ ​make​ ​a decision​ ​quick.​ ​If​ ​you​ ​decide​ ​to​ ​take​ ​advantage​ ​of​ ​a​ ​cash​ ​advance​ ​or​ ​small​ ​business​ ​loan,​ ​the longer​ ​you​ ​wait,​ ​the​ ​less​ ​time​ ​you​ ​have​ ​to​ ​shop​ ​around​ ​for​ ​the​ ​best​ ​option.​ ​Thus,​ ​you​ ​could​ ​rush your​ ​choice​ ​and​ ​end​ ​up​ ​with​ ​a​ ​less-than-great​ ​lending​ ​program​ ​or​ ​even​ ​struggle​ ​to​ ​​get​ ​approved for​ ​a​ ​loan​ ​in​ ​time​ ​to​ ​make​ ​a​ ​difference.

4. Ask​ ​For​ ​Discounts 

This​ ​practice​ ​is​ ​very​ ​similar​ ​to​ ​the​ ​above,​ ​but,​ ​instead​ ​of​ ​calling​ ​for​ ​a​ ​lot​ ​of​ ​immediate​ ​help,​ ​this strategy​ ​involves​ ​consistently​ ​asking​ ​for​ ​a​ ​little​ ​bit​ ​of​ ​aid.​ ​People​ ​like​ ​to​ ​see​ ​small​ ​businesses succeed,​ ​even​ ​when​ ​they​ ​aren’t​ ​their​ ​own.​ ​No​ ​matter​ ​what​ ​the​ ​focus​ ​of​ ​your​ ​business​ ​is,​ ​you have​ ​costs​ ​and​ ​these​ ​costs​ ​come​ ​from​ ​a​ ​variety​ ​of​ ​sources:​ ​suppliers,​ ​vendors,​ ​distributors,​ ​etc.

While​ ​these​ ​expenses​ ​may​ ​seem​ ​fixed,​ ​renegotiating​ ​them​ ​is​ ​always​ ​an​ ​option.​ ​By​ ​talking​ ​with your​ ​cost-related​ ​associates​ ​or​ ​partners,​ ​you​ ​may​ ​be​ ​able​ ​to​ ​talk​ ​them​ ​into​ ​a​ ​unique​ ​pricing option​ ​that​ ​better​ ​suits​ ​your​ ​small​ ​business​ ​needs​ ​and​ ​budget.​ ​It​ ​isn’t​ ​always​ ​going​ ​to​ ​work,​ ​but when​ ​it​ ​comes​ ​to​ ​a​ ​startup​ ​company​ ​that​ ​is​ ​trying​ ​to​ ​minimize​ ​costs​ ​and​ ​maximize​ ​profits,​ ​a little​ ​bit​ ​can​ ​go​ ​a​ ​long​ ​way.

5. Don’t​ ​Quit​ ​Your​ ​Job,​ ​Not​ ​Yet 

One​ ​of​ ​the​ ​biggest​ ​financial​ ​missteps​ ​that​ ​a​ ​new​ ​small​ ​business​ ​owner​ ​makes​ ​is​ ​going​ ​”all​ ​in”​ ​too soon​ ​and​ ​leaving​ ​their​ ​current​ ​job.​ ​Again,​ ​it​ ​is​ ​common​ ​for​ ​a​ ​startup​ ​owner​ ​to​ ​want​ ​to​ ​devote​ ​all of​ ​their​ ​time,​ ​money​ ​and​ ​resources​ ​into​ ​their​ ​company​ ​right​ ​away.​ ​This​ ​often​ ​means​ ​quitting their​ ​job​ ​to​ ​free​ ​up​ ​a​ ​lot​ ​of​ ​their​ ​time.​ ​But,​ ​putting​ ​all​ ​your​ ​time​ ​and​ ​energy​ ​into​ ​your​ ​startup isn’t​ ​always​ ​the​ ​smart​ ​bet.​ ​

Working​ ​80-hours​ ​a​ ​week​ ​for​ ​your​ ​own​ ​business​ ​may​ ​seem​ ​like​ ​you are​ ​living​ ​your​ ​dream,​ ​but​ ​it​ ​skews​ ​your​ ​profit​ ​margins​ ​and​ ​simply​ ​isn’t​ ​sustainable.​ ​Just​ ​because you​ ​are​ ​benefiting​ ​from​ ​80-hour​ ​weeks,​ ​doesn’t​ ​mean​ ​your​ ​earnings​ ​will​ ​continue​ ​when​ ​you begin​ ​to​ ​burn​ ​out​ ​and​ ​have​ ​to​ ​scale​ ​your​ ​workload​ ​back.​ ​Balancing​ ​your​ ​small​ ​business​ ​with​ ​an existing​ ​job​ ​can​ ​help​ ​ensure​ ​you​ ​don’t​ ​exert​ ​too​ ​much​ ​into​ ​your​ ​new​ ​venture.​ ​Plus,​ ​it​ ​is​ ​a​ ​good way​ ​to​ ​help​ ​fund​ ​your​ ​startup.

6. Recognize​ ​and​ ​Plan​ ​for​ ​Seasonal​ ​Cash​ ​Flows 

Any​ ​business​ ​owner​ ​knows​ ​that​ ​profits​ ​aren’t​ ​stagnant;​ ​sometimes​ ​they​ ​are​ ​down,​ ​and​ ​other times​ ​they​ ​are​ ​up.​ ​Being​ ​able​ ​to​ ​anticipate​ ​these​ ​peaks​ ​and​ ​valleys​ ​allows​ ​you​ ​to​ ​plan​ ​and budget​ ​better.​ ​For​ ​example,​ ​if​ ​you​ ​know​ ​business​ ​(and​ ​thereby​ ​profits)​ ​slow​ ​between​ ​the months​ ​of​ ​March​ ​and​ ​May,​ ​then​ ​you​ ​can​ ​prepare​ ​for​ ​this​ ​downturn​ ​and​ ​ensure​ ​you​ ​have​ ​the financial​ ​stability​ ​to​ ​outlast​ ​the​ ​slow​ ​periods.​

​Handling​ ​downtime​ ​and​ ​the​ ​slow​ ​times​ ​is​ ​more difficult​ ​for​ ​a​ ​startup​ ​company​ ​than​ ​it​ ​is​ ​for​ ​an​ ​established​ ​business.​ ​There​ ​isn’t​ ​prior​ ​history​ ​for you​ ​to​ ​look​ ​at​ ​and​ ​determine​ ​when​ ​these​ ​slow​ ​or​ ​busy​ ​times​ ​will​ ​be;​ ​therefore,​ ​you​ ​need​ ​to make​ ​sure​ ​you​ ​chart​ ​your​ ​activity​ ​from​ ​the​ ​beginning​ ​so​ ​that​ ​you​ ​have​ ​the​ ​necessary​ ​tools​ ​to plan​ ​in​ ​the​ ​future.

7. Watch​ ​Your​ ​Burn​ ​Rate 

The​ ​idea​ ​of​ ​burn​ ​rate​ ​goes​ ​back​ ​to​ ​the​ ​idea​ ​of​ ​trying​ ​to​ ​protect​ ​yourself​ ​from​ ​going​ ​too​ ​far,​ ​too fast.​ ​Your​ ​burn​ ​rate​ ​is​ ​how​ ​much​ ​you​ ​are​ ​spending,​ ​against​ ​your​ ​incoming​ ​revenue.​ ​If​ ​your​ ​burn rate​ ​is​ ​too​ ​high,​ ​then​ ​you​ ​are​ ​essentially​ ​hemorrhaging​ ​money.​ ​In​ ​these​ ​instances,​ ​it​ ​is​ ​time​ ​to slow​ ​spending,​ ​so​ ​that​ ​cut​ ​back​ ​how​ ​much​ ​you​ ​are​ ​putting​ ​into​ ​your​ ​small​ ​business.​ ​The​ ​burn rate​ ​for​ ​small​ ​business​ ​is​ ​high,​ ​and​ ​you​ ​do​ ​not​ ​want​ ​to​ ​become​ ​another​ ​statistic.​​ ​If​ ​that​ ​means slowing​ ​down​ ​and​ ​gathers​ ​some​ ​funds,​ ​it’s​ ​wise​ ​to​ ​do​ ​so.​ ​​ ​It’s​ ​better​ ​than​ ​digging​ ​an​ ​enormous financial​ ​hole.​ ​

When​ ​you​ ​spend​ ​beyond​ ​your​ ​means,​ ​you​ ​put​ ​yourself​ ​in​ ​jeopardy.​ ​What happens​ ​when​ ​you​ ​have​ ​burned​ ​through​ ​your​ ​finances,​ ​but​ ​run​ ​into​ ​a​ ​tax​ ​penalty​ ​or​ ​regulation fine?​ ​If​ ​you​ ​don’t​ ​have​ ​the​ ​reserves​ ​or​ ​savings​ ​to​ ​pay​ ​it,​ ​your​ ​situation​ ​goes​ ​from​ ​bad​ ​to​ ​worse​ ​in moments​ ​and​ ​sends​ ​you​ ​into​ ​panic​ ​mode.​ ​Always​ ​keep​ ​some​ ​reserves​ ​in​ ​the​ ​coffers,​ ​just​ ​in​ ​case.

Conclusions 

In​ ​their​ ​earliest​ ​stages,​ ​small​ ​business​ ​startups​ ​are​ ​fragile.​ ​Often​ ​what​ ​makes​ ​the​ ​difference between​ ​a​ ​successful​ ​startup​ ​that​ ​ultimately​ ​blooms​ ​into​ ​a​ ​still-growing​ ​business​ ​and​ ​one​ ​that flops​ ​quickly​ ​out​ ​of​ ​the​ ​gate​ ​is​ ​how​ ​frugal​ ​their​ ​owners​ ​are.​ ​It​ ​easy​ ​to​ ​want​ ​to​ ​go​ ​a hundred​ ​mile per​ ​hour.​ ​After​ ​all,​ ​many​ ​of​ ​us​ ​dream​ ​of​ ​owning​ ​our​ ​own​ ​small​ ​business,​ ​so​ ​to​ ​see​ ​that​ ​dream come​ ​to​ ​fruition​ ​is​ ​incredibly​ ​exciting.​ ​This​ ​high​ ​paced​ ​excitement​ ​is​ ​necessary​ ​to​ ​get​ ​the​ ​wheels moving​ ​and​ ​push​ ​you​ ​through​ ​the​ ​early​ ​stages​ ​of​ ​your​ ​business,​ ​but​ ​it​ ​can​ ​also​ ​be​ ​a​ ​detriment​ ​if you​ ​let​ ​it​ ​get​ ​ahead​ ​of​ ​you.​ ​Without​ ​proper​ ​planning,​ ​sound​ ​financial​ ​practices,​ ​and​ ​careful spending,​ ​that​ ​dream​ ​can​ ​turn​ ​into​ ​more​ ​of​ ​a​ ​nightmare.

Guest Post by Trey Rollo 

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