The entrepreneur’s journey isn’t a waltz through the roses. This path demands more than determination and hutzpah, too. It doesn’t matter what industry you’re in or what kind of business you want to build – entrepreneurs must start with a solid foundation for success. And that foundation begins with finances.
If you want to craft a successful, lasting business that is an asset rather than a liability, start here. Getting the fiscal side right is critical – so commit these financial rules to heart.
10 Financial Commandments for New Entrepreneurs
Rule #1 – Scrutinize your relationship with money.
If you’ve never considered your relationship with finances, do it now. Understanding your relationship with money refers to profound awareness and comprehension of how you think, feel, and behave regarding money. These behaviors aren’t always rational and can influence spending and saving habits. They might even be a source of self-sabotage!
Do you see finance as a source of stress or as a means of empowerment? Do you have any impulsive spending behaviors? How does earning and spending make you feel? These often subconscious beliefs drive how well you manage your finances.
Rule #2 – Investigate tax liabilities.
When you start a business, you open yourself to a new world of tax liabilities. Even if you’re a humble soloprenuer operating under a sole proprietorship, you must consider things like quarterly estimated tax payments, self-employment tax, and new opportunities for deductions. Your business structure will also impact tax liability. Look at all your options, consult with a CPA, and make sure you understand the tax burden you’re taking on. No one likes surprises from Uncle Sam!
Rule #3 – Back up your venture with passive income.
Many entrepreneurs face some lean years before their businesses take off. You can help offset the financial demands of starting a business with passive income. I recommend looking into investment opportunities that offer cash flow. Investing in real estate is one such avenue, but you can do plenty of things. For some, it’s writing a book and earning residuals. It can be monetizing a blog or another type of investment. Regardless of the method, this extra cash flow will help when a new business demands its upfront costs and slow returns.
Rule #4 – Mind your cash flow & liquidity.
New businesses take time to grow. You must stay on top of your cash flow! Margins will be tight, especially in the beginning. You may encounter clients who don’t pay their invoices on time. Pay attention to when you get paid and if there are any delinquent payments you find yourself waiting for. You might need to change up your strategy to deal with these clients! Consider provisions in your contracts – what happens if you don’t get paid on time? Both incentives and deterrents can work here.
Additionally, think about the liquidity of your assets. Entrepreneurs must be ready to tap into cash – ensure you can do so without too much hassle.
Rule #5 – Get insured.
One of the best things you can do for your business is to get it (and you) properly insured. Reduce your liability and risk exposure. For many, this could be as simple as general liability insurance. But there’s also professional liability insurance, worker’s comp, cyber liability insurance, etc.
Rule #6 – Focus on being rich, not looking rich.
We all face pressure to show off our success through lifestyle – or worse, to project an image of success we haven’t yet achieved. Live lean. Forgo the frivolous things. Prudence with your finances will only benefit you in the future. Spend where it counts, and be frugal where you can.
Rule #7 – Maintain good credit & eliminate debt.
Being saddled with debt will bring your business down. Interest payments will absolutely sap your wealth. The higher your debt, the bigger your monthly payments and the longer it will take to pay off. As an entrepreneur, you can’t afford that. Nor can you afford to have bad credit.
Rule #8 – Bring in the professionals.
Never underestimate the value of a professional consultation. Whether financial planning, risk assessment, tax guidance, or estate and retirement planning, we can all benefit from expert direction. It can bring clarity to complex circumstances.
Rule #9 – Set your budget & stick to your guns.
This rule is simple: set a budget and stick to it. This budget will change and evolve over time, so revisit it frequently. Ensure you’re getting paid, covering expenses, and setting emergency money aside.
Rule #10 – Invest in your future.
You’re frugal in some areas to invest in others. Entrepreneurs and owners should spend on their future. Invest in training, scaling, systems, and people that will take your business to the next level. Wise investments build stronger businesses.
What financial rules have created success for you? Share in the comments!