Managing Your Finances as an Entrepreneur
[This article was written by Dawn Castell.]
Starting a company can give you a greater sense of control over your professional future. This is because you can set your own hours, create your own corporate culture and otherwise pursue your vision with minimal interference. However, being an entrepreneur can be challenging as you have to be good at managing money. Let’s take a look at how you can live your dream while also keeping the business financially stable.
Know Where Your Money Is Coming From
Ideally, you have a variety of funding sources available to you before you start your company. For instance, you could choose to have customers pre-order your product. This gives you access to the money needed to build or otherwise develop your product without having to seek outside investors or a bank loan. It can also help you determine the level of enthusiasm that your target market has for your item.
You may also choose to use your own money to fund operations. The money may come from a savings account, a 401k loan or by refinancing a home loan to turn equity into cash. In some cases, it may be a good idea to have a second job to earn money that could be used to get your business off the ground.
Don’t Be Afraid to Ask for Help
One of the best things that you can do for your company is to find someone who believes in your vision. Generally speaking, outsiders who believe in what an organization is trying to do will be more willing to put up the capital needed to keep it going.
This could mean helping your business pay employees or vendors on time. It could also mean paying to have manufacturers produce your product in larger quantities. The reason why it can be a good idea to make your product in bulk is that you will be charged less per unit.
How Is Your Credit?
When you first start out as a business owner, you will likely obtain financing based on the quality of your personal credit score and history. Therefore, if your credit score is low, take steps to improve it as soon as possible. You could start by paying down an existing credit card balance or by settling a debt that was paid 60 or more days late.
As your credit score improves, it generally becomes easier to get financing for your business. Ultimately, this provides the flexibility needed to ensure that payroll is met or that lenders don’t take legal action against the company for not paying valid invoices on time. Credit repair services may be available to help you meet this financial goal.
Consider Alternate Forms of Credit
In some cases, even a good credit score and solid credit history may not be enough to get a business loan. However, this doesn’t mean that your company can’t get access to the credit it needs. Alternative credit providers may offer your business the upfront capital it needs with reasonable terms. For example, factoring companies will purchase your accounts receivable, which means that you can turn promises to pay later into cash today. Typically, factoring companies charge a transaction fee of about 15 percent.
Being a business owner means that you are solely responsible for paying your employees as well as any other liabilities that the company incurs. As your organization grows, it will become easier to know where the money will come from to meet those obligations. Furthermore, it will be easier to obtain loans and other traditional financing to keep your business going strong. In the meantime, good planning is the best way to keep your company in the black.