Starting a new small business requires prior practitioners to take on new financial management responsibilities previously handled by former bosses. Entrepreneurs must learn new skills, use new tools, and stretch their capabilities to a new level. No matter what type of venture you’re launching, your long-term success is dependent on your ability to manage your finances. Learn best practices and take away actionable tips to set your business on the right track from day one.
1. Create a Business Plan
Without a plan, you can’t know where you’re going or what steps to take to achieve your goals. If your inspiration to start a consulting firm stems from your job dissatisfaction, write down what makes your approach different. Outline how you’ll operate, what success looks like, and how your clients will differentiate your offer from others.
Identify your revenue streams and how many of them you’ll need to support your baseline staffing level. If you’re going solo to start, this number may be vastly different than if you have employees depending on you. Next, determine what essential expenses you’ll have as well as those that would be helpful additions. Knowing the difference between baseline expenses versus those that are extra can help keep your finances on track.
Plug your revenue targets and expenses, including payroll, into your small business accounting software to calculate your projections. This will help you determine if your plan is sustainable or if you need to make adjustments. If you’re in the red, review your rate structure, payment terms, and expenses to identify where improvements are needed. Benchmark your offering against peers in your industry to ensure you’re competitive while avoiding over or under-bidding.
2. Establish Business Banking and Service Accounts
If you’re starting as a solopreneur, it may be tempting to combine your deposits with your personal account. However, this move can present accounting challenges that are difficult to manage when it comes to taxes and differentiating expenses. If you need a loan, your personal transactions may decrease your likelihood of approval. Make a clear separation between your business and personal accounts by establishing a business banking relationship.
Pay yourself a set hourly rate or salary, using your revenue projections to determine the appropriate amount. Issue yourself a paycheck using your accounting software to maintain clear records and avoid potential confusion. Keep the amount you deduct for taxes in your business savings account and conduct a quarterly analysis to ensure you’re saving enough.
A checking and savings account is a must, as you’ll need a place to park revenue for taxes and reserves. Additionally, open a business credit card to facilitate business transactions without mixing business with pleasure. Many cards offer elite rewards for business clients, including travel perks and discounts. Use them to entertain clients, invest in your business, and decrease the cost of regular operations.
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Another smart move is to set up business accounts for sites you use regularly for supplies or technology. Amazon Business offers exclusive discounts for customers while segregating business purchases helps streamline accounting and tax allocations.
3. Manage Invoicing and Payment Terms
The signature on a contract may be the green light to celebrate, but it’s dually important to clarify payment terms. Work with your legal counsel to develop a comprehensive client agreement that covers mutual expectations. Depending on your line of work, this may require a deposit upon the start of work, which covers expenses and materials.
Identify what this number might be using your revenue projections and audit its accuracy during financial reviews. This practice can protect your financial standing while also ensuring your client is serious about moving forward. Once your client has signed their contract, build in a protocol to initiate and reinforce them. Your invoicing software can initiate invoices and automate reminders before the due date to encourage timely payment.
If payments are not made, your system can push notifications to you and remind clients. This automation will save you the time of reaching out individually and alert you as soon as there’s an issue. If your terms include a penalty, your system can apply it automatically, reducing potential lost revenue.
While notifying clients is part of the process, so too is how you manage your invoicing. Establish a standard protocol for how and when you’ll bill clients after work is completed, so they can manage their expectations. If you drift into the practice of invoicing later than promised, it can be challenging to reinforce payment terms. Consider if you can offer incentives for early payment or favorable rates for an ongoing retainer. These strategies can improve cash flow for your business and earn long-term clients.
Make Being Financially Organized One of Your Core Business Values
No matter what type of business you’re running, strong fiscal management is key to success. Ensure that your business plan projects potential revenue, identifies and mitigates risks, and anticipates growth. Apply this information to your daily financial management, adjusting your plan and your approach as the market and technology change. When you do, you’ll make sound decisions, and wise investments, and enjoy the rewards of establishing a sustainable and profitable enterprise.
