Managing a business is hard work. If you make the wrong financial decisions now, it could jeopardize the future of your enterprise. As with most things in life, knowledge is the key to success. Here is a quick guide to the most important financial decisions you’ll have to make, and how to ensure you get it right.
The first financial decision you need to make is what type of business structure your business needs. There are several to choose from, including sole proprietorship, partnership, co-operatives, or corporation. The model you choose will influence how you run the business and, most importantly, how much tax you pay and who will be the decision makers. If in doubt about the pros and cons of each, speak to an experienced CPA.
The type of business structure you want to establish may also rely on your start up capital. If you have huge savings account or a rich family, you can go sole proprietorship. However, if you don’t, you may opt to have partnership or a corporation.
Unless you have a huge savings account or a rich family, it is likely that you will need startup capital to fund the business. How you raise this money is very important. In some instances, you may have to hand over a share in your business to secure funding. Also, some sources of funding take longer to raise than others.
Investigate your options. Look at traditional forms of funding, such as private equity loans and other lines of credit, and then compare them to newer strategies such as crowdfunding. There are numerous options available, so do your homework to ensure you make the right decision.
Even if you don’t need startup capital to get the business off the ground, sooner or later, you will need financial assistance. This could be anything from urgent business loans to ease a cash flow crisis to investment to fund a business expansion plan.
Borrowing money is part and parcel of running a business, but it is critical that you make the right decisions, or you could end up paying more than you need to in interest on the loan.
Sooner or later you will need help to run the business. The problem is that ‘help’ costs money. The decision you have to make here is whether you need in-house employees or freelancers. Think very carefully about this.
In-house assistance can be invaluable, but it is also costly. You still have to pay an employee when business is slow, and you’re also in the line for employee taxes, healthcare, and other expenses. With a freelancer, you only pay them for the work they do. You don’t need to give them a desk and you’re not liable for employment taxes.
Weigh up the pros and cons and decide on the best option for your business, but remember, businesses evolve, so the right decision now might not work in 12 months’ time. Make sure to adjust accordingly.
Managing the Day-to-Day Finances
When it comes to financial decisions, you need to stay on the ball. Monitor your cash flow and keep a close eye on your credit control. Sloppy financial management is a fast track to business Armageddon. The more involved you are in the financial management of your business, the more likely it is to be successful.