Managing Your Business Finances Before Day One Is Possible

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Most of us believe financial management is for big businesses. We envision corporations with board members discussing financial figures. But what if an eCommerce business like yours can also do financial management? What if you can do this even before you start your business?

This article will discuss managing your business finances, even before day one. It’s a strategy to help prevent you from having to put out financial fires by fortifying your business with robust plans and financial systems.

For startups, managing business finances starts with these steps.

10 Ways To Manage Your Finances

A woman sitting on the floor surrounded by sheets of paper using a calculator.

1. Know the Cost Nature of Your Business

You have to know what business or industry you’re getting into. That means researching as much as possible about how your business works because every activity entails a cost.

Find out who your suppliers are. If you produce your product, request a list of raw material costs. The same goes with vendors you vet for your business equipment. Then, consider other business costs such as leasing space, utilities, and employee salaries.

Be specific about the numbers, but be conservative about your assumptions. This way, you’ll get better insights into your startup’s overall cost behaviors. Moreover, identifying and knowing them will help you to manage them better.

2. Choose the Right Business Structure

Some businesses are organized in a way that limits your financial exposure. One good example is a limited liability company. In a nutshell, this business structure caps your financial exposure only to what you invest in the company.

If you are risk averse and want to protect your assets, consider a business organization that will support that.

3. Account for Taxes

You’ll have to know what taxes your business must pay. That may depend on where your business will be registered.

For example, ecommerce sales tax is common for any online business, and the payment responsibility falls on the company or seller. You’ll need to know the rates so you know how much to pay, thus avoiding overpayment.

Apart from knowing your taxes, you also have to get familiar with any tax laws associated with your business to take advantage of any breaks or exemptions.

4. Create a Business Financial Plan

Most entrepreneurs create a simple business plan. This is to have something to show just in case they need to present to stakeholders. But to manage finances well, you’ll need to make a comprehensive business plan and add a detailed financial section.

A financial plan includes projected budgets and revenues backed by research. At the minimum, it has to be in the form of a financial statement that presents a month-by-month schedule. This projection should span at least 3 to 5 years forward.

Financial planning will help give you a roadmap of the business’s income and expenses, which you can use as benchmarks to manage your finances before it starts.

5. Consider Your Business’s Burn Rate

A startup is a gamble. But to take calculated risks and incorporate more knowledge and skill into your venture, you must consider the burn rate.

To an entrepreneur, the burn rate is the business expenses their equity can shoulder should the business fail to turn a profit. Think of it as an airplane burning tires on the tarmac. You’ll need to account for how long it will take before the plane takes off, or when the business becomes reliant on its revenue.

Accounting for burn rate can only come with a robust financial plan. But once you have one, it will help you determine how much you need to invest as equity to keep the business running. Additionally, it sets your expectations on the financial risks involved, thereby letting you better manage them.

 A business person working with a spreadsheet on his laptop

6. Separate Personal and Business Assets

If you’re a sole proprietor who owns an ecommerce business, it’s hard to manage its financial aspect if it is mixed with yours. You’ll have to separate them so both can make sense.

One way to do it is to create an exclusive business account for equity. But there are more ways you can consider to help you manage your finances better.

7. Stick To Using Your Own Assets

For the time being, especially during the business-building phase, you must stick to investing your own assets. That means examining all the stuff you own, liquid or non-liquid. Then use them to finance your business as planned or needed.

This strategy helps minimize any further financial risk and liabilities. For example, if you apply for a loan and use it as capital for your startup, you not only guarantee creditors with collateral or personal assets, you’ll also subject your business to interest payments. This can lead to unnecessary costs that will burden your infant enterprise.

We understand this may be a challenge for some ecommerce sellers. So if you absolutely have to apply for a business loan at the startup phase, consider these do’s and don’ts of financing your small business.

8. Consider Bringing in Other Investors

If your priority is funding, you can find investors who believe in your business and have them share the financial risks. This will reduce your exposure. As a tradeoff, the investors you take in will have a controlling interest in your company and can involve themselves with decision-making.

9. Invest in Cloud-Based Accounting Software

One significant business finance advantage you can invest in is cloud-based accounting software. Quickbooks Online or Xero are among the most popular for small ecommerce businesses.

Online accounting software is more efficient and user-friendly than going for the traditional route. Any average person can learn how to record transactions using them. As a result, you’ll have a better chance of recording, updating, and analyzing your business’s financial information.

10. Hire Bookkeeping Experts Early

Effort-wise, managing ecommerce business finances is relatively easy. What makes it difficult is the process of recording the data needed for analysis. So if you intend to do it yourself, you might want to reconsider. You’ll spend more time bookkeeping and analyzing than actually doing what matters—generating profits.

In the long run, hiring a bookkeeper before you start your business is a good choice. This is because you’ll get organized financial information submitted to you promptly and accurately. 

Several bookkeeping agencies can also help generate reports and assist you in financial and even ecommerce performance analysis. It’s an investment that saves you a lot of time and effort. All you need to do is make the important decisions.

Business people analyzing graphs from a white tablet Business Finances

Manage Your Business Finances Before It Starts

Planning and managing business finances may be associated with an established business. That has to change. Even at the pre-operations phase, an entrepreneur like you can start enjoying a more efficient use of your equity and position yourself for success.

All it takes is a little more oomph in the planning phase. Yes, some of us may hate numbers, but that’s where experts come in to help. With the right amount of due diligence and collaboration with professionals, you can make managing your business finances a breeze even before you start.

So go on and check out more of our entrepreneurial articles. The bits of wisdom will better equip you whether your business is in the planning phase or it is already off the runway. You can further talk to experts about how you can set up excellent ecommerce bookkeeping.

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Author’s Bio:

mike_pignatelli

Mike Pignatelli, CPA, is the CEO of Unloop Accounting, an agency built to meet the accounting needs of modern ecommerce businesses. As an experienced financial controller, Mike has worked with various seven-figure inventory businesses. Mike and his team are your go-to accountants if you need reliable data to make sound financial decisions.

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