3 Financial Steps to Take when you are Starting your own Business

If you are starting your own business, there are 3 important steps you need to take with your finances to boost your chances of success.

3 financial steps to take when you start your own business

Okay, so you’re starting your own business, or you’re already up and running. That’s awesome! I’m a firm believer that being an entrepreneur takes serious grit, imagination and some practical skills. One of the hardest parts of the entrepreneur's life is that your finances may feel uncertain at times. But, there are easy steps you can take right now to ensure your companies’ financial success and help put your mind at ease, knowing exactly where you stand. And no, you don’t need a degree in business or finance to get it done.

Step One: Don’t Rely on Debt

I know, it’s really easy to just swipe a credit card and get what you need right away. But, this can be disastrous for an entrepreneur. It’s unrealistic to say that every business should have enough start-up money for everything needed to get off the ground, but you should save as much money as possible before you quit your day job and invest that into your business.

You will absolutely thank yourself for taking the extra 6 months or year to save some money to get started with as little debt as possible.

If you’re already up and running - don’t take on new debt. Find every expense you can drop or lower and start paying back any debt you have accumulated.

Step Two: Separate business and personal finances - cut down on confusion

Have you been buying all your work supplies out of your personal checking account or with cash? If yes, stop!

Go open a business checking account ASAP.

Start making all of your purchases for your business through that account. Deposit all of your business income into that account. There’s a couple of reasons this is so important.

  1. The only way to find out how much money you’re making is to find out how much money you are spending. Let me put this into context. You just started your own plumbing business. You quote a customer $500 to replace her toilet. But, you’re not making $500; you’re making $500 MINUS whatever the cost of the supplies, insurance you have, vehicle you drove to the job, gas put into the vehicle, etc.  However, if all of your purchases - personal and business - are in the same place, it becomes really difficult to separate them. Cue the hours wasted sifting through iTunes purchases and Zelle transfers from dinner with friends.
  2. Your accountant will sing your praises. You just made their job 100x easier. Hopefully, your bill for their services will reflect that.

The bottom line: you need to know what you’re spending on work and what you’re spending personally. Make it easy and open a separate account.

Step Three: Budget

Creating a budget when you are just starting out can be tricky - you don’t know exactly how much money you’re going to make in a month or how much you’ll be spending in a month.

First, you can start with keeping your expenses to only what you absolutely need. Do you need a separate workspace or can your garage accommodate you for the next few months? Are custom T-Shirts necessary right now? Where do you need to spend money to make sure that you will get the job done? Is your insurance and licensure up-to-date? Are you paying yourself?

After the first few months, your budget will start to reflect more accurately what your business needs more of and what it can do without. As far as income, use the average over a few months. Take the time every month to review your budget and make changes.

Again, this is why separating business and personal finances is so incredibly important. Almost every financial decision you make for your business will be rooted in knowing exactly where your business spends its money and how much money your business brings in.

So, whether you’re selling hand-made goods on Etsy or landing gigs as a private yoga instructor or starting a subcontracting business, these three steps will set you up for financial clarity and success.

Written by Friday Digest Contributor Kathryn Honan