Businesses can never be predicted. A company might be enjoying a profit now, but soon, might find they are suffering a loss. Exciting as it may sound; it is you venturing into a land of uncertainty. As you enter the world of business, you get busy with trying to create a brand name for your business and a space of acceptance, in the market. A fool-proof plan is a must, before you get lost in the maze of competition.
One of the major difficulties of starting a business is having enough capital. Here are some important financial tips you should know:
Personal Credit And Business
Mixing business liabilities with your personal property will land you in trouble. Small scale companies often mix the accounts of their personal property and their business liabilities together. Although it might not prove too difficult, it does affect their credit standings in the long run. It is often the most risky and most discouraged idea to take credit on a personal guarantee. If you fail to pay the money back on time, you can become legally obliged to pay, with repercussions of dealing with the government. That is why, it is best recommended, that even in the situation of urgent need of money; never take a loan on a personal guarantee, it might land you in a lot more trouble than you think.
Investment
A diversified investment is better than in one. Small scale companies seem to generally direct all their sources to one particular industry. It might look like an easy and maintainable way of managing their business; but it runs a risk in the long run. As the proverb goes, never put all your eggs in one basket, any trouble at the industry you invested in will cause a serious loss to your business. Divide your investment in different industries. To keep yourself balanced, it is better to not be dependent on only one industry. This keeps you off the risk of market downfalls and losses. And do not invest more than 5% of the company’s wealth into one industry. Mix it up to reduce the risk: buy shares, invest in bonds and stock markets, etc.
The Type of Business
We should also be clear about the type of business we want to deal as, whether in a sole proprietor business or a partnership or in a co-operation. This needs careful planning and forecasting to decide what would suit you best. You would need to talk to lawyers and accountants, of the obvious risks and taxes one has to pay in various cases.
In a sole proprietor business, you alone would have to pay off all the taxes by yourself, but at the same time, you are also the sole owner of the company and its profits, and would have unlimited freedom to decide on the strategies and direction of the business. A corporation gets its finances from the shareholders, and therefore, is best suited for industries which require heavy financing.
Financial Analysis
The owner needs to be fully aware of the financial state of their business. Looking at it from a third perspective often helps to analyze and make decisions from a clear-headed stand point. It also gives us the peace of sharing our situation with others. Of course, it might not be best to talk about every day, and so, a specific date must be planned every month, to sit and discuss the finance and advancement of the company. Also, mistakes in accounting might not noticed in day to day life, but over careful evaluation.
Prevention of Investment of Personal Cash
Personal credit cards must never be used while making business. It is important to keep a financial distance when dealing with business. This must always be dealt with from a bank. Banks can offer loans at a reduced price or at low interest rates. Dealing with banks should be a better option than using your personal account, as a company is always exposed to the possibility of loss. It is not worth the risk of involving your personal account, for matters of small financial concerns and there is the added risk of damaging the company’s reputation. Bank loans can also be paid in small installments, which can give the company enough time to catch up on its profits.
Your Salary And the Company’s Profit
Try to adjust your salary to suit the needs of the business. If the business is running low, cut down on your salary. A businessman cannot always get a fixed salary. He can be making profits or suffering a loss. It is never a good idea to lend money to pay tax and other necessities. It is only going to get you more into debt. Rather than taking money off your personal account, try adjusting the profits of the company. If the company has not been making profits, yet you still draw your fixed salary, this is going to affect the resources of your company and its performance will be affected.
These financial tips are surely going to come in handy with your business. Supported by hard work and dedication, profit making is not far away.
