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Starting a business is an expensive endeavor, no matter what. When you’re first getting off the ground, there’s a whole world of costs that few first-time business owners see coming. It’s easy for this to get overwhelming, fast. Fortunately, there are several things you can do to keep things manageable.
For starters, give yourself realistic expectations. Most new businesses don’t turn a profit in the first year, and many companies will stay in the red for two or three before they start making real money. Although you shouldn’t be content to hemorrhage money, it’s totally normal to fall behind more often than you’re ahead at the beginning.
Next, you should focus on protecting your assets and building a budget that allows you to evaluate and adjust your spending as necessary. Here’s a look at how to make this happen:
Protect Your Assets
Being a business owner means taking on risk, but you shouldn’t take on avoidable risks along the way. For example, many business owners push off forming an LLC, but the designation can make a big difference if you’re ever challenged in court. With an LLC, there’s a line of separation between your business and personal assets. This keeps your personal world much safer - plus, getting a New York LLC can even simplify your tax filing process.
Another smart way to protect your assets is to hire a bookkeeper. A pro can help you keep track of your expenses and income and give you a good sense for how you’re managing. They can also help you identify inefficient processes or investments with poor return on investment, which will help you stay savvy and spend wisely.
Unavoidable (and Vital) Expenses
In every business, there are expenses that simply cannot be avoided. One of your first jobs as a business owner is to figure out what those expenses are and create a budget that can meet them. For example, if you have a physical location, these expenses would include rent, utilities, and insurance. If you sell handmade goods, the cost of materials would fall into this category.
When you build a budget for your small business, be sure to separate these expenses from the more flexible ones we’ll discuss next. When it comes time to evaluate what is and isn’t working for you, you can easily set aside the non-negotiables and dive into the more malleable parts of your budget.
It’s always important to recognize that, where possible, your budget should be flexible from year to year and even quarter to quarter. You don’t have to continue to commit to expenses that aren’t working for you. For example, say you’ve invested in a marketing freelancer, but you haven’t noticed more business since they started. It’s easy to fall prey to the sunk cost fallacy here, but recognizing you’re getting little (or no) ROI should always prompt you to ask questions and, if appropriate, find a new solution.
Early on, you should always be evaluating your budget to ensure you’re using your money effectively. Eventually, you can check in with spending less frequently, but keeping a close eye on things at the beginning helps you catch the (inevitable) flubs you’ll make when first starting out.
Stay smart about how you’re spending your money, and your business’s cash flow will thank you. Remember - most businesses don’t turn a profit early on, and the expenses you handle at the beginning are an investment in your company’s future. Wise expense management is all about keeping an eye on those investments and tweaking them to ensure success in the end.
Photo Credit: Pexels
by Jim McKinley