Sometimes the simplest set of rules tend to be the most effective. Think about the Ten Commandments – there are only ten of them, but considered as a single entity, this code of conduct addresses most aspects of human life.
You may be wondering what this has to do with financial practices and small businesses.
As with anything, there are certain rules that should be followed when starting out as an entrepreneur – especially if it’s your first time. After all, the last thing you want is for your financial concerns to get on top of you. However, if you want to retain your sanity, you can’t worry about your finances all the time, and other parts of your small business will inevitably demand your attention.
That’s why I recommend you follow this set of tips for managing your financial practices so that your business can survive (and thrive!) in this volatile economy. Feel free to experiment – after all, that’s what entrepreneurship is all about – but be careful not to break what I’d like to lightheartedly call my Seven Financial Commandments.
As G.K. Chesterton once said, “It is shorter to state the things forbidden than the things permitted; precisely because most things are permitted, and only a few things are forbidden.”
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1. Don’t run out of money
This is the first and most fundamental commandment of business building. It may sound obvious, but once your money is gone, your options are gone, too. Your credibility will follow soon after. It doesn’t matter how good your product is or how innovative your marketing – without money, nothing happens.
Those days when all you needed to start a business was a good idea and an initial investment are long gone – if they ever existed in the first place. More startups close their doors every day. The only way to guarantee long-term success is to guarantee yourself long-term profitability, and the way to do that is to watch your budget like a hawk.
Make sure you choose your liabilities carefully. Don’t pay too much in salaries early on. Set aside money every month – businesses need savings, too. If your budget is sound and you stick to it aggressively, there should never be a time when you don’t have enough in the bank to cover your expenses.
2. Don’t forget to monitor your income and expenditures
To succeed as an entrepreneur, you need to watch your money as it comes in and goes out. It’s essential to understand money. Who are your biggest clients? What are your most profitable enterprises? Are all your ventures paying for themselves?
This information allows you to prioritize your spending and saves you from investing lots of money on projects that aren’t going to give you the ROI you require.
The same goes for expenditures. Solo entrepreneurs in particular often work with service providers that operate on a subscription-based model. This means rates can go up without warning. Hidden fees and termination penalties can hurt you if you don’t pay attention. Make it a practice to know where all your money is all the time.
3. Don’t make big expenditures early
There’s a popular notion going around right now that startups should invest heavily early on, taking big risks in the hope of massive growth. Some people call it the moonshot model… you know, like shooting for the moon. This is how Uber grew so quickly. They spent massive amounts of money on promotion and expansion, forgoing the incremental growth model used by most companies.
Unfortunately, moonshot-style business doesn’t always work out that well. I’m not going to tell you to avoid risk, but I am going to tell you to avoid career suicide. Spending money you don’t have is a great way to ruin not just your business, but your life. The vast majority of moonshot-style startups fail.
Wait to take risks until you have some money in the bank. Be judicious about spending on the following:
- Launch events
- Early promotion
- Backend systems
- Rent, maintenance and upkeep
- Customer service
If this means forgoing an elaborate launch event or settling for a small office in an outer suburb rather than a palatial one in the city, so be it. Take pleasure in the finer things once you can actually afford them.
4. Don’t let catastrophe catch you out
Being an entrepreneur is inherently risky. More than half of new businesses fail in the first five years. It’s not a question of if you will face setbacks, but when and how. Partners will let you down. Customers will desert you. Systems will, yes, fail.
You can’t anticipate every problem, but you can take steps to put ballast in your figurative ship, helping you ride out the storms.
Good business insurance is a must. Most policies cover the death of a partner, natural disasters and lawsuits, and of course worker’s compensation is essential. In a litigious society like ours, most businesses can anticipate being sued at least once.
So what will you do when things go wrong? Do you have a good idea of your options? You may want to look at factors such as your liquid assets and your credit scores. Keep your score at 690 or above. You’ll be glad you did if it ever becomes necessary to bail yourself out.
5. Don’t waste time to save money
Time and money are the two finite resources that the world wants most – and it seems like they’re often mutually exclusive. The rich pay for the poor to do their chores because they don’t have time, and the poor do rich people’s chores in addition to their own because they don’t have money.
There’s an obvious incentive for cash-strapped entrepreneurs to try to do everything themselves – it doesn’t cost any money! But avoid falling into this trap if you can. You will ultimately spread yourself too thin. Plus, if your business relies too heavily on you, it will actually lose value. You’ll never be able to sell it because you’re an integral part of it.
Respect the value of your time. Don’t be afraid to delegate responsibilities to others. Make sure that your time is never wasted doing something that somebody else could do better or cheaper.
6. Don’t cheat yourself
In the same way that I just advised you not to make your business rely too heavily on your own efforts, you don’t want to shortchange yourself of its dividends either. Even if you’re totally invested in your startup, you still need to pay for your family and your lifestyle. So take a salary. Invest in yourself.
Your business should be doing a few things for you:
- Providing an income
- Building your credibility
- Expanding your network
- Teaching you valuable life skills
- Creating valuable assets
If your startup is falling short in one of these categories, make it your mission to find out why. If you have a larger business, remind yourself that it should be providing these same benefits to your employees and partners.
Remember, profits should mean more than just money, and success is measured in more than just numbers.
7. Don’t neglect the geese laying your golden eggs
Every business that succeeds does so because something goes right. Maybe it’s their customer on-boarding system, maybe it’s their initial product offering, or maybe it’s their customer-first branding. But sometimes these same businesses fail because they forget the very component that led to their initial success.
This commandment is all about taking careful note of everything that contributes to your success, and that includes customers. Remember that your business will ultimately fail without customers. Reach out to new customers, but also employ measures to retain the ones you already have.
Starting a new business is intimidating and difficult, but the stress can be drastically reduced if you follow solid financial practices to keep yourself safe and set a pathway for success. Use every success you encounter as a stepping stone. If you use your money to protect and expand the factors that are bringing you success, you’ll find it much more difficult to fail.
Remember, you don’t need to know everything in order to succeed as a first-time entrepreneur. In fact, it’s impossible to, so don’t bother trying. These seven financial commandments encapsulate the essence of everything you need to know. If you use them as the cornerstone for your business, you’ll avoid a lot of financial trouble.
Some of these laws will be more relevant to you at times than others, but stick with them and remember not to complicate things. After all, the simplest things seem to last the longest.
Have you seen success with any of these tips? Are there any others you would add? Let me know in the comments section below.
Guest Author: Lucas Miller is a Freelance Copywriter and Founder of Echelon Copy. When not writing, tweeting or attempting to play pickup basketball, he’s working tirelessly to perfect what he claims is the “World’s Greatest Pompadour.” To get more tips on how to start your own six-figure freelance copywriting business, join his free newsletter.