You’ve started your own home based business. You’re excited about working for yourself and you’re ready to make your business grow. There’s only one challenge holding you back: Managing your business finances is confusing.
You know you’ve got to tackle it.
But where do you start?
First, take the time to understand the basics about business finance. Pay attention to important weekly and monthly financial tasks. Build time into your schedule to manage and monitor your money.
This will help you create a sound financial structure and good money management capabilities for your business. You’ll learn to keep track of and project your revenue, expenses, profits and cash flow.
Then put into practice some basic finance management steps by avoiding these common mistakes:
Being Unclear About Your Current Financial Picture.
Learn the fundamentals of business finance and set up a financial management system. For example, Wave Accounting is a free cloud-based accounting system that will help you manage your money. QuickBooks Online and FreshBooks are also highly rated for use with small businesses (for a small monthly fee). Choose a system that will grow with your business. Check out an overview of online accounting systems here. You’ll also want to learn how to read financial statements. Your statement tells you all about your money, including who has paid you, who you’ve paid, and where your money is now.
Not Having Enough Money Reserves.
Don’t quit your day job until you’ve built up your business. Rich Dad founder Robert Kiyosaki recommends waiting until you are making twice as much in your business as you are in your job. That gives you a buffer if circumstances change in your business.
Not Setting A Budget.
Without a budget in place, your business will falter. Learn how to create a budget. Break expenses into categories such as revenue, expenses, profits, and cash flow. A budget provides a structure for managing your business, keeping it strong, and minimizing your risks.
Avoid big overheads with high rent, utilities, office equipment and shipping. Keep your overhead as low as possible when just starting out. For instance, you can limit expenditures by renting a more moderate space, out-sourcing jobs instead of hiring employees, and drop shipping your products.
Being Unclear About the Difference Between Cash Flow and Profit.
Do the terms cash flow and profit seem interchangeable? Profits mean the money left over after expenses are paid. Cash flow means the money going into and out of a business. It covers daily operating expenses, taxes, inventory, and payroll. Forecasting cash flow is critical to keeping your business afloat. You’ll know when to expect both leaner and cash-rich periods.
Focused On Cutting Costs Instead of Increasing Profits.
Reducing costs and saving money is useful unless it cuts into your profit making time. You can still take advantage of cost-saving services, such as free video conferencing or cloud-based accounting software. But spend most of your time and effort on creating profits. That’s the path to a successful business.
Over Reliance On a Few Customers.
It’s exciting to get your first customer. It’s really exciting to grow your customer base. If you don’t, you won’t be in business for long. Build stability while building your customer list. Don’t get caught losing revenue when your best customer has problems paying you.
Have some fun learning these skills with games like Monopoly or Rich Dad’s free online Cashflow Classic app. With the app, you’ll learn to read and understand a balance sheet.
Get clear about finance basics. And soon you’ll be making smart financial decisions for your business.