Financial fundamentals you should master before deciding to start a business
The idea of turning a passion into a full-time job is exciting and appealing, but also presents its fair share of challenges. Perhaps you’re thinking about taking the leap to bring your business dreams to reality but don’t know where to start. Before you make any major moves, consider adopting a few basic financial fundamentals to start your business on the right foot.
Understand Financial Basics
When launching a startup company, it is critical to understand up-front and ongoing costs. Consider how you want to structure your business, how you are going to obtain the necessary licenses and permits, and estimate how much working capital you’ll need to operate during the first six to 12 months. Once you have nailed down these preliminary key steps, turn your attention to budgeting. Ask yourself, what costs will be ongoing? How am I going to project revenue? How will I manage cash flow? Learning how to create and monitor a budget is essential to running a successful business. Understand what bank accounts and lending options are available to you and learn how to interpret financial reports. You don’t need to be an expert, but these basics can help you withstand industry or economic downturns and take advantage of opportunities.
Ask for Advice
Starting a business comes with ambiguity, and you may be faced with unexpected challenges. Talk with someone you trust to help guide your decisions. Find a friend, a relative or mentor who’s been in your shoes and ask for advice on what to expect. Talk with an attorney or CPA to help you navigate your business structure and financial operations. As you grow, you will be presented with new decisions to make, and it helps to have people you trust in your corner if you’re ever caught off guard.
Improve Financial Literacy
Common mistakes made by small business owners include not having a solid plan, not putting a budget together, underestimating startup costs and not paying attention to the financial side of business. Having a passion and talent does not necessarily mean someone is a natural business operator. A recent study by Intuit stated that 40 percent of small business owners admit to being financially illiterate. The study also noted that 80 percent of business owners handle their business finances themselves. This shows an obvious disconnect from what business owners are doing themselves and what they actually know how to do. Don’t let financial confusion get the best of you. There are plenty of free resources available online from which to take advantage. FDIC offers training modules through its Money Smart program and covers topics such as insurance, tax planning and business banking. SCORE is a resource partner of the SBA and provides assistance through mentoring, workshops and educational resources. Additionally, having a face-to-face conversation with a local financial expert is sure to help you stay on track.
Make the Right Move
Before making a permanent decision for your business, understand the weight of responsibility that comes along with it. Prepare to make a decision by asking, do I have access to the right amount of capital? Am I comfortable with leveraging personal assets to help my business? How will it affect my family, and what sacrifices will we need to make? Or, maybe you want to think about finding a partner to carry some of the weight. Do you know someone who’s looking to invest in a business? Is there anyone that shares the same passion and is looking to start the business with you?
There will always be financial risk when starting a business, and the reality is, you will never have all the answers. Proper planning can alleviate some questions, but at some point, you’ll have to make the jump, and only you can determine when you’re ready.
Since its founding in 2005, Paragon Bank has maintained a solid focus on the community and customer service. For nearly 15 years, Paragon has delivered innovative products and financial expertise, convenience, and a deep understanding of what both businesses and individuals need from a bank, in order to provide solutions that make a difference. In the areas of business or personal banking, lending options or wealth management, Paragon delivers cutting edge technology, an experienced team and the most service-oriented staff of any community bank.
For more information about Paragon Bank, please call (901) 273-2900 or visit bankparagon.com.
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