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5 Financial Considerations to Make When Starting a Business

5 Financial Decisions to Consider When Starting a Business

A new business means freedom like you’ve never experienced. It could also mean wealth untold, but only if you’re smart with your finances. Too many businesses shut down prematurely because their finances were out of order, but yours doesn’t have to be that way.

There are a few financial considerations to make at the start of a new business. After you’ve secured initial financing, keep the financial aspect of your business a priority.

Here are some considerations that will help you thrive.

1. Keep a Line of Credit

You’ll likely need access to funds other than your initial investment to keep your business going. Taking out a line of revolving credit helps many businesses stay afloat.

“Revolving credit is a unique form of credit that is much different than a traditional loan,” explains Jason Smith of Small Business Loans. “With revolving credit, a lender will extend you a set credit limit. This limit will be determined by a range of things, but will ultimately depend on what the lender thinks you are capable of borrowing. Once a limit is set, you can borrow from the limit when you need to. If you don’t end up using any of the limit, then you won’t end up paying any of it back – nor will you have to pay any interest on it.”

Credit cards and business lines of credit are the two most common forms of revolving credit, each with its own pros and cons. Having a line of credit available is vital to bridging gaps when cash is tight.

2. Minimize Overhead

Everything you spend in a business eats your profits. Prioritize purchases to minimize costs.

“Make a list of all the items you’ll need to purchase or lease to get a true sense of your start-up and operating costs,” suggests John Gin, a financial advisor and contributor for Nola.com. “Will you need big ticket items such as business or office space, manufacturing and computer equipment? What about smaller purchases like office supplies and software? It’s beneficial to have a detailed list of your needs when making a plan and figuring out your costs.”

Additionally, factor in labor costs, utilities, property-related expenses, and other costs of running a business. Look for ways to minimize spending so that you can maximize your profits.

3. Track and Monitor Spending

“Most startups fail for a variety of reasons, but one is far more common than others—running out of money,” says Jonathan Long, founder of Market Domination Media. “You need to know where every single dollar is coming from and where every single dollar is going. If you don’t stay on top of your cash flow, you are going to put your business in a very dangerous position.”

Consider hiring a full-time employee to manage your expenses. You might also invest in quality software like QuickBooks to handle accounts and send money to the right places. It will not only prevent a serious cash disruption, but will also help make tax season easier.

4. Invest Appropriately

Spending money is the best way to make money in business, but only if you’re smart with your investments.

“Thinking about investing also means you have to think about your priorities,” says Nazlin Amirudin of the online publication Entrepreneur Insight. “What does your startup really need as opposed to what you want it to have? For example, you can cut back on the expenses of renting an office at a popular area by starting off working at co-working spaces instead…Remember, this is just the beginning. There are many more things you will have to invest in in the future.”

Plan accordingly.

5. Maintain Cash Reserves

It won’t take long for your initial savings to dry up. You can rely on lines of credit and loans, but it’s often better to have liquid assets.

“Having a savings plan in place can help your business avoid paying interest when making major purchases, provide a financial cushion during economic downturns or enable you to expand your business when the time is right,” says Craig Sievertson, SVP, Small Business & Consumer Loan Manager at Banner Bank. “…No matter what your business goals are, having a solid financial cushion in place can help increase the long-term stability of the company.”

Each
of these financial considerations requires careful planning and sharp
monitoring. Money can work for or against you, so make it a priority as you
manage your cash fl

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