How do we usually perceive finances? Typically, we think that it is a tiresome and obscure thing. But in reality, finances can be simple. We should consider only the required fields of information and process only the totals needed for decision-making.
Financial affairs can not be avoided in business. Moreover, business finances required attention in personal countings of the owner likewise. That is why the best practice would be to deal with the main nuances once and for all. It will help to quickly understand the essence of the company's funds and deal with them competently.
Why does an entrepreneur need to handle his/her finances?
Here is the list of frequent problems concerning entrepreneurs' finances and false statements which may lead to wrong results:
- It's impossible to predict something, so it would be best not to spend extra time dealing with finances.
- The price of the product is high enough, so the profit is inescapable.
- It is an excellent practice to distribute the received investments "on the go" as the need arises.
- There is no need to understand precisely how much to spend on rent and how much on marketing.
- The financial reports are not needed because business is working fine.
- To have one account for personal needs and business because it is not so bad.
If you have found your thoughts on these statements, I have some disappointing news for you. Most likely, your business will not work long while so do not stay amused by the ghostly hopes and try to change your attitude to finances. It does not matter whether your business now consists of just an idea or already actively growing.
It should be remembered that 75% of startups die during their first 20 months and 46% of them die because of financial incompetence. That is, a company's financial incompetence pattern, which does not know what finances are and how to deal with them, is widespread.
The frequent problem is simply a lack of experience in accounting and financial accounting. Also, making the emotional product pricing because of the lack of knowledge in this field. In general, the problem of rejecting planning and lack of knowledge about financial management.
Small and medium businesses do not know how to count. It is normal at some of the initial stages. It is not possible to reach all the information at once in the first month of your activity and to cover all the aspects of the business. But it's important to understand that the financial component of the business is crucial for your business to become successful.
Choosing the right way from the very beginning.
When you come up with an idea and want to make a startup, at first, you need to understand whether there is a business spark in this idea. Analyze the global and local markets. Determine if your idea can grow into a business and potentially bring income. Also, if you already have a business and within a year it does not provide you with profit - you must be honest with yourself and admit that this is not business but charity.
A potentially winning plan is to determine the amount of money needed to grow your business in advance. You should be prepared for different scenarios for business development.
If you plan to get additional financing for your business, then you need to have a plan with a financial model. It is when you want to attract investment from an investor -> you apply for a grant. Then you will be asked to show specific financial calculations, a business model, a marketing plan, and so on. Therefore, to attract investment, you need to understand how much you will earn, what your monetization model will be, who are your potential buyers, and how much can you potentially get.
Well, it is the perfect time to ask questions as other experienced companies do all the time:
- How much can I spend on marketing and how much can I pay to my employees?
- Can I pay for a bonus this year?
- Can I rent this office or not? And can I rent it, for example, a year later?
- What budget can be allocated to salaries?
- How to optimize costs? Etc.
To all of these questions give answers exactly good Financial Management.