7 Financial Steps Every Small Business Owner Should Take
The financial education necessary to run a small business isn’t readily available in modern society. This is a strange set of affairs, to be sure, considering the voluminous educational resources we claim to possess as a result of all the technology we wield on a daily basis. The truth is finances are more complicated than most people would like to believe, and learning to master them requires continuous work.
There are a few things that should be at the top of every entrepreneur’s priority list when it comes to their financial education and first actions when they hang up their shingle. Failure to address the proper steps in the proper order is a self-correcting flaw, as the expense and inconvenience will eventually either drive the business into receivership or re-orient the owner’s priorities to make failure a non-option. Among the various things you should keep in mind if you are starting a business are the following.
Even if your chosen academic interests lie elsewhere, take an accounting class and make sure you get a good grade. If you don’t understand accounting, you will never succeed in business. It really is that simple. Most people are completely ignorant of what it takes to be minimally competent in keeping a set of books, which is why most people are not cut out to be entrepreneurs. Make sure you understand accounting before you even think about starting a business.
Join the Credit Bureaus
Every time you take on a new customer, even if they are buying a five dollar product, you are taking a risk. The higher your prices, the higher this risk climbs. The potential for fraud from your otherwise reasonable-looking and reasonable-sounding customers is always there, which is why you have to protect yourself in advance. If more than a token amount is at issue, and especially if new customers create new expenses, find a reason to require a credit check. Your attorney will be grateful.
Keep a Reserve
Set aside 10% to 15% of your gross to cover the costs of the fraudulent customers you are certain to encounter in your day to day operations. The proliferation of chargebacks, friendly fraud, disputes and outright criminal activity should be enough to dissuade you from the dangerous belief your customers can be trusted. They can’t. Protect yourself, because you can be certain nobody else will.
Debt is a business killer. Your favorite comic book movies were almost sunk forever by the debt incurred against their licensing value a couple of decades ago. Even if you are successful, too much debt will eventually drag your company down. The best way to avoid debt is to replace it with new customers and new sales. Always remember sales solve every problem a business can have. Pursue those instead of filling out loan applications.
Establish an Entity
The liability faced by nearly any small business in the modern era is enough to make the average attorney start drinking heavily. Facing that liability as a sole proprietor is nothing short of reckless. Every company should be housed inside some kind of liability shield, whether it is a full-blown corporation, an LLC or even a partnership. Not only does this have tax advantages, but it will help the business owners avoid overwhelming liability in the event of a dispute.
Hire an Accountant
Speaking of tax advantages, and even if you pass multiple accounting classes, you should hire a competent accountant at your earliest opportunity and do exactly what they tell you.
Hire an Attorney
While you’re hiring people, retain an attorney as well. Introduce them to your accountant. Do what they say. Your life will be considerably better as a result.
The basic steps required to start a business are relatively standard. The best way to succeed is to avoid unnecessary risks and to avoid unnecessary liabilities.