Finance in business – what you need to know

Finance in business – yawn, I can hear you thinking that right now!

So let me surprise you and say this is not going to be about banks, loans, credit lines, venture capital, seed money, angels or anything else like that.

We need to get to the nuts and bolts of financing your own business. OK?

Here are our 4 rules of finance for your own business:

1) Get your own finances under control

If your personal situation is not in order, it’s unlikely you’ll manage your business finances any better. Starting your own business will incur some costs. So look at your personal expenditure and make sure that you’re only spending what you need. We have tools to help you do this.

It’s amazing how much you can save and how much fun it can to do it. Tightening your belt and being frugal is a skill you should learn. There’s nothing wrong with it!

Now look at your assets. Stock, bank balances, etc. This will help you understand how much you can afford to invest in your new business. Each month you save money, add it to the pot.

This is finance in business at the micro end, but it’s just as important!

2) Don’t give up your current job

You do not need to give up your job if you’re thinking about starting your own business. It’s probably your main source of income at the moment and you’ll need it as long as you can. We call this “moonlighting” and it’s done by most people who start their own business.

What you don’t want to do is give up the day job and then realize that your idea does not work! That’s a disaster, particularly at the moment, in the current economic mess.

3) Make smart plans

As you develop your business idea you’ll create your first business plan. Part of this plan will be an assessment of how much cash you need. The smart plan also looks at what we call cash flow.

One of the mistakes people make is to just think of the cash they need to launch or start your business. You will need a reserve of cash until you are profitable. So plan for the equipment and start up expenses and then plan for the losses you’ll incur before you are cash flow positive.

4) Spend wisely

It drives Angelique and I nuts when we walk into a new business and see the owner with expensive office furniture, nice offices and all that stuff. Don’t fall into this trap.

Spend money on what you need and not what you want. Cash is your life blood. Don’t throw it away on excesses. You won’t be impressing anyone. Once you’re profitable, there will be time for perks.

Finance in business starts with getting the first things right. As we move forwards we will cover other issues for you.