Starting a new business is the epitome of risk. But as all successful entrepreneurs will tell you the more you can calculate that risk the better. Only an idiot would risk everything on a new idea without testing the market and without some sort of buffer or fallback.
This article focuses on building your buffer. Here are our top tips on how to reduce your expenses and learn how to budget so that your new business can thrive.
Save money before starting a business
Businesses that start with a buffer fund are more likely to succeed. It’s not complicated: any new business is likely to have peaks and troughs – your buffer find will enable you to survive those troughs. Your buffer is most likely to be your savings, but it can also be a part-time job or free accommodation or back-up from a spouse or relative. Whatever it is that will enable you to survive through an early business crisis.
Having money in a savings account when starting is a huge help. As a rule of thumb, you should have at least 20% of your yearly wage saved up to comfortably start a new venture.
Second-hand furniture & equipment
This may be the first time that you have been able to set up your own workspace. It can be tempting to treat yourself and create a workspace that lives up to your ambitions. But take it easy. You should only care about areas that are public-facing. If your office or workspace is behind the scenes, then scrimp for now. Find second-hand options or lease options for furniture or equipment while you build up profits.
If you need expensive equipment or a vehicle then you may need to take out a loan. It is worth checking out the Government-backed Startup Loans Scheme. Self-employed status can make it more difficult to access a mortgage or standard car loan. Take care if you need to apply for multiple loans as it can affect your credit score. Some companies will conduct a soft credit check rather than a full one, thereby protecting your credit rating.
Track your income and expenditure
As a business owner, you’ll need to track all the expenses and revenue. This is helpful because you’ll know exactly where the money goes. Not only this, but it’s a requirement in the UK to keep a record of your income and expenditure so that you can accurately report your profits and losses to the HMRC.
Even having a simple cash flow spreadsheet can help. There are countless free templates designed to help with budgeting. You can also check out budgeting apps that will ensure your business finances stay on track.
Slash unnecessary costs
It’s well-known that spending less and saving more is a key to financial freedom, but life gets in a way. There are holidays, shopping sprees, and even unexpected expenses that need to be sorted. Before buying something, think about whether you really need it or if it can be saved for a rainy day. Most people think about their present self and how to make it better NOW, to get that instant gratification. Instead, you should look ahead in the future and make financial decisions that will benefit your future self.
Put the money back into the business
Once your business starts generating an income, you can either spend it, invest or save it. If you’re set on growing the business, then investing it back in is the best option. As a start-up, there will be a lot of costs, so focus on them and particularly, cover the fixed expenses, whether that’s website hosting, domain renewal, marketing or a month’s rent for the office.
In the future, once the business has picked up, identify key areas for growth and invest in them. The key here is to not keep your money stationary, but rather pour it back into the business.