Is becoming a successful entrepreneur your dream? You must be working hard on the skillset required for your stream of business. Probably you are proficient in what you do. But do you know that financial planning is essential in every industry for running smooth operations and earning maximum profits?
However, not everyone who dreams of running a business is financially savvy. If you haven’t looked upon your personal finances to arrange them to help in your business, you can take reference from this post and manage your debts and expenses accordingly.
Table of Contents
5 Factors to Keep in Mind Before Starting a New Business
If you’ve just started a new business or are about to begin your journey of being a businessman, take a note of the following financial tips to remember:-
1. Create & Use a Budget
Can you reach a destination without its map on your phone or in your head? Not possible right? So how can you achieve a goal without a plan? Your goal or ambition is only a dream without a plan. Create a realistic budget for your investment requirement and running capital.
Chalk out ways from where you will arrange all the money and how much profit you can generate through it. No matter how brilliant and unique it is, a project without proper financial planning and budget is a recipe for failure.
2. Get Rid of Your Credit Card Bills
Credit card usage allows you to spend whatever amount of money you want. However, sometimes, this facility creates more issues than it resolves. A late payment, missed payment, or credit utilisation ratio of more than 30%, can mess up your personal credit profile and CIBIL score.
Many lenders consider your personal credit scores as one of the deciding factors for approving your business loan. So get rid of your credit card dues every month and ensure that your record is clean. You can take a debt consolidation loan if this task seems daunting.
3. Build a Credit Report
Your credit report summarises all your financial transactions to the lender. A lender can see your credit card expanse, utility bill payment, small loan repayment, etc. Any default reflects in your credit report decreases your CIBIL score.
When you are a beginner, a low CIBIL score becomes a roadblock in building your credibility in front of lenders. Create a responsible credit record to show your creditworthiness.
4. Hone Your Financial Skills
As mentioned at the beginning of this article, you must be proficient in your business but not necessarily in financial planning, which is vital for the success of your endeavour. So apart from sharpening your knowledge of your field, learn finance also. You can join an online course or private coaching. Read books, articles, or blogs related to financial planning.
You can also listen to podcasts. Do whatever floats your boat but don’t spend a day as an entrepreneur with insufficient knowledge of finance.
5. Invest to Raise Your Value
Your knowledge of finance needs to be at par not only for the growth of your business but also for broadening your investment portfolio. You also want to build an investment portfolio for yourself and your company. Understand the concept of economic trends of the market, type of investment opportunity, namely safe or growth-oriented, or both.
The correct financial planning of your savings and investments helps you attain your financial goal and raise your and your company’s net worth in the market.
Types of Business Funding
There are 2 types of business funding, with their individual pros and cons. You can decide which is better in your case according to your financial planning and goal.
- Debt Funding: Debt funding comprises all types of loans you can take from the market for your business, like bank loans, business lines of credit, etc. You pay interest on these loans and need to repay them irrespective of profit or loss and success or failure of your venture.
- Equity Funding: Equity funding involves funders who may take a seat at the decision-making table with you, which means giving ceding control to investors. For instance, angel investors and venture capital are types of equity funding.
It comes with less financial risk as, unlike debt funding, you don’t need to repay the funds in case of loss or failure of your business.
Final Thought: Take the Mystery Out of Finance
Hopefully, it’s pretty clear to you by now that a robust understanding of finance is paramount. Whether, it’s a subject of your interest or not, learn about aspects of business financial planning such as CIBIL score, proper credit card usage, debt consolidation loan, etc., to protect your dream of achieving exponential growth in your business.