[This article was written by Dawn Castell.]
Starting a new business is an exciting and stressful venture. Although there are many unknowns that come along with establishing a new company, the potential for growth and success offer a worthwhile goal. One of the toughest challenges for a new business is finding enough capital. Even running a small business from home requires a decent amount of money to start. This investment is even more challenging as their isn’t a guaranteed return if the business doesn’t succeed. Here are a few budgeting tips for new businesses and entrepreneurs.
1. Separate your business and personal finances.
The first step when starting a business is to separate business finances from personal finances. Having the two of these mixed can cause problems for both your personal and professional life. When establishing a new business, there are some ways to separate and protect your personal entity. The risk is significantly higher when an individual is financially and legally tied to their company. This places the individual at risk of bankruptcy if the business were to fail. Most entrepreneurs will legally separate themselves from their business to ensure protection even in case of bankruptcy. Separating your personal and business finances is the first step in this process of protection
2. Set income aside for tax purposes.
Paying taxes for a business differs greatly from those filed for an individual. It is important to remember that running a small company will almost double the amount of tax work that needs to be filed. Even when profit is low, the government still wants to see the paperwork. Many new business owners and entrepreneurs make the mistake of not planning for taxes. In an eagerness to see growth, they will pour all of their profits back into the company. While reinvesting money into a new business is important for growth, it is foolish to not set aside money for taxes. When tax season comes around, you don’t want to dip into personal funds to make the payments. Planning ahead and calculating an estimated payment is a great way to prepare for paying taxes.
3. Cut spending as much as possible.
When starting a new business, it is tempting to spend a lot of money. From equipment and working space to employees and resources, there are countless components that go into a new company. Within the first few years of growth, it is important for an entrepreneur to cut spending as much as possible. Investments should still be made to keep the business running and growing. Any frivolous spending should be cut out completely. Small businesses are sometimes tempted to spend like larger companies in order to prove their size and growth. While investing in PACs and other economic or political policies can help spur growth, this is something that should be reserved for more successful and larger businesses.
4. Don’t be afraid to haggle.
Entrepreneurs and new business owners will spend a lot of their time dealing with vendors for resources, equipment and other aspects of the company. As these costs will be reoccurring and and integral component of the new company, it is important to negotiate good deals. A poor rate can end up hurting a business in the long run. New businesses shouldn’t be afraid to haggle for a fair price that suits their needs. Vendors should be more than happy to find a deal that will benefit both parties involved. After all, your success means more business for them.
5. Hire freelancers instead of full-time employees.
Business will be inconsistent at the beginning. Even with a successful start, it is common for new companies to experience spikes in sales. Instead of losing money on employee contracts when business is slow, consider hiring freelancers. Writers, designers, cleaners and line-workers are all positions that can be hired on a freelance basis. This style of employment ensures that a new company isn’t losing money even when business is inconsistent.