- Don’t try to run before you can walk
Starting a business is exciting, and when you first start out it’s difficult to avoid agreeing a lease on an office in the best part of town, buying state of the art equipment for your office and the fastest broadband available. You may feel like you need the best to get your business going, but more often than not, you can get by on the basics first. Don’t assume your business will take off rapidly from the get go, it could take a while to start generating a profit, so don’t get yourself into debt setting up your business; buy only the things you need to get started and don’t get carried away.
When setting up contracts such as your phone line, your internet, office bills etc. make sure you do your research on the market and negotiate the best prices available. They may seem small in the short run, but they are bills you don’t want to be worrying about if your business doesn’t do as well as you first hoped. Go for the basics at the beginning and build your way up when you have more capital.
- Do your research on loans and funding
Knowing the best option for your business before applying for funding will benefit you tremendously- the last thing you want is to apply for a certain type of loan and realise it’s not the most beneficial to your company. Make sure you do your research and weigh up all your options before making any decisions. There are various types of funding available, such as grants, government schemes and bank loans, all with different terms and conditions. By planning what money you need and not getting carried away, you can figure out what kind of funding will be the best for you. Forecast your business on a five year basis, but don’t assume you will be raking in the cash from the start. Lots of businesses need time to find their feet, so always assume you’re not going to do as well as you’d hoped, then you won’t wind up in debt if that actually happens.
See our blog post on start-up funding for some advice.
- Protect your assets
Protecting your assets is not as commonly spoken about as it should be in business. If you are a sole owner of a business and you want some help with funding, private investors could offer you help in return for a percentage of your company. Some of them may even choose to be a silent investor, where they don’t get involved in the company, they just own a percentage of it after giving you the money, or they could wish to get involved. Be careful of these offers. You could either resent the fact that you are doing all the work in the company and yet it’s not wholly yours if you have a silent investor, or on the other hand if you have an investor who is hands on, it could frustrate you that you don’t have full control on what goes on in the business. We would advise you to never give away any percentage of your company, there are other options out there as stated above that could help you with funding, so protect your assets.
- Pay close attention to your accounts
When you set your business up, pay close attention to your accounts and what is going in and out of them. We always encourage businesses to build a strong cashflow from the start, so always be sure you’re paying your bills on time and more importantly, getting paid on time.
The most important part of your business is getting money through the door, so credit checking your customers is vital. Monitoring your customers ensures they continue to be creditworthy when you are dealing with them, and they are able to pay you over a long period of time. Investing in a credit checking system such as the Creditsafe system gives you the peace of mind that you are able to make quick, informed decisions on whether or not to deal with a company. Our credit reports shows you their credit score, credit limit, payment behaviour, mortgages and loans, group structure plus much more. So when you are deciding if they are creditworthy enough to pay you if you do business with them, we give you all the information you need to make a sound, informed decision.
- Prepare for the storm
Business is going well, money is coming in and your cashflow is steady, but what happens if one of your biggest customers becomes insolvent? Hopefully, you would already have them on Creditsafe’s Risk Tracker, so you would have been alerted of their diminishing credit report. When this happens, always try and put money aside in preparation of not being paid. It is always best to have back-up cash in case anything goes wrong to keep your cashflow steady. The growing trend of late payments can be very damaging to a business so try your best to keep your cashflow afloat if the inevitable does occur.
So there are our top five financial tips for starting a business. Remember, the old statement of ‘cash is king’ still stands; making sure your cashflow is strong will result in the stability of your business. Good luck!