Starting a small business can be an exciting time, but things might get a little less than exhilarating when your financial plan is the topic of discussion.
Financing your business will be tough, but it is possible to attract investors and manage funds wisely enough to make it out of the beginning phases of your business and into a period of growth. As a new business owner, you will have to avoid the many financial pitfalls that tend to end new ventures.
Check out the financial tips below in order to better manage funds and make the monetary aspect of your small business a little easier:
1. Choose a bank, remain consistent with it
Eddie Wang, co-founder of women's clothing manufacturer Toula, explained to Immpreneur a few of the financial lessons he learned running his own company, including the need to stick with the bank you choose. From the time that Wang began studying at the Fashion Institute of Technology, he has used the same bank in order to build a history there. Whether it is a major chain or a community bank, make sure that you stick with the institution you choose, instead of bouncing around. Wang said that if he ever needed a loan, it would be easier to get one if he knew the bankers at the branch he visited, he told the news outlet.
2. You may not need to pay taxes right away
Depending on how your business is set up, taxes may not be an immediate concern, according to Bankrate. Though the rules are not one-size-fits-all, and the publication noted there are "twists," generally if you operate as a sole proprietorship, then you will not have to pay taxes right away.
"Going by the letter of the law, if you make more than the de minimus amount of $400, you're supposed to file taxes quarterly," David Williams, founding director of Business Enhancement Associates, LLC, told Bankrate "But there are no penalties if during the year you shift from being an employee to being self-employed and you don't make quarterly tax payments."
However, this is not true if you have formed a corporate entity, in which case you will have to report income as you earn it.
3. Seek alternative financing
By the time Wang was ready to construct his own building, he was in need of significant funds in order to take that next step – cash he did not have, according to Immpreneur. In order to secure the more than $1 million he would need in financing o complete his building, Wang began searching for a Small Business Administration loan. These loans spur banks to lend to small business through loan guarantees from the U.S. government. This financing also helped Wang expand his product line.
4. Wait on insurance until you need it
Generally you won't need any sort of insurance when you first start your business, Bankrate noted, though when you hire your first employee, you will definitely need it. Also, if you're working out of your own home, you can use homeowner's insurance in order to cover minor incidents. Liability insurance will depend on your business. The publication suggested that if you work in a field that doesn't feature too many lawsuits, then it won't be necessary for you to purchase liability insurance.
"If you sell bottle corks, your liability would probably be limited to replacing bad bottle corks," Williams told Bankrate. "If you mass-produce cherry jam, you have the liability caused by people getting sick on your jam or breaking their teeth on a cherry pit. You wouldn't want to self-insure that liability. You'd want product liability insurance."