Financial literacy is something that can help everyone keep their businesses sustained for long. It is extremely necessary for those entering the world of business and entrepreneurship to have a solid knowledge of finance. It will help them tackle the challenges that will show up during their entrepreneurial journey.
In this article, you will learn personal financial hacks that are important for startup founders and budding entrepreneurs. You will learn the key elements that can help new businesses sustain. These elements will help you keep your vision alive and serve your customers without any problem.
Financial Hacks for Budding Entrepreneurs
Here are some important hacks for startup founders that will keep them financially safe and enable them to build their empires and tackle their financial issues:
Understanding the Basics of Finance:
It is important to understand the basic principles of finance, such as revenue, expenses, profit margins, and financial statements. By understanding these elements, you can take the first step toward building a financial foundation that is solid. These elements are critical to the financial health of your startup. They also influence your decision-making process significantly.
Revenue is the money that your company earns from the services or products it offers. Expenses involve all the costs that occur while running the firm. It can be both fixed and variable. The profit margin is the measure of how much money your company will make from its products or services after cutting all the direct and indirect costs involved.
Financial statements comprise income statements, balance sheets, and cash flow statements. They are the tools that will help you monitor your organization’s financial performance. It also enables you to make well-informed decisions regarding scaling and investment for your business.
The most prominent example of this would be Airbnb, which was about to be closed within its early years. Due to a lack of finances, this company was about to be shut down in 2008. Its co-founders reviewed their financial accounts and resorted to cost-cutting strategies. They altered their income strategy by offering professionally-captured photographs of the listings, which boosted their profit margins.
By applying this strategy, they managed to stay afloat till they secured funding from various venture capital organizations like Y Combinator. This is one such example that shows you the importance of understanding basic financial principles.
Cash Flow Management: Your Startup’s Lifeblood:
Every organization running in this world considers cash flow as its lifeblood. To ensure long-term success, you should know how to manage the cash flow in the correct way. Apart from tracking the amount of money that comes in and goes out, cash flow management also involves strategic allocation.
This strategic allocation ensures that your organization can survive harsh times and utilize growth opportunities to their full potential. Having a cash flow budget is a proactive way to manage the liquidity of your company. It will help you anticipate the periods when there will be either a surplus or shortage of funds.
Toys “R” Us is one prominent example of having poor cash flow management. Despite being a globally renowned toy manufacturer, this company had to face bankruptcy in 2017 as it was not able to finish off its debts and reinvest in its stores.
However, in 2018, the American retail company Kroger sold private-labelled Toys “R” Us products in some of its stores. In 2019, Toys “R” Us was able to make a comeback and emerge from bankruptcy under the new name “Tru Kids.”
This example shows the importance of having an efficient cash flow management system, which will help you avoid any financial hazards.
Educating Yourself on a Financial Level:
For a successful entrepreneurship, it is important to keep yourself financially educated continuously. As factors like tax rules, economic conditions, and opportunities for investment are always changing, you need to stay up to date with these changes and educate yourself accordingly. It will allow you to make decisions that are relevant to the current best practices.
Elon Musk, the co-founder of Tesla and SpaceX, who is also currently owning X(formerly Twitter) is one of the biggest examples for financial education. He gained knowledge from various financial books and got better knowledge from his mentors to understand financial principles in a better way. This helped him raise capital successfully, manage cash flow, and bring more profits to his business.
Seeking Professional Help and Knowledge:
Although self-education is a great strategy, seeking professional guidance can significantly help you sustain your business. While working with financial advisors, accountants, and consultants specializing in startups, you can gain insights into your organization’s particular difficulties and the stage of growth.
These professionals can help you develop robust financial plans, tax planning, and recognizing investment potential that align with the goals of your business. Most importantly, they will help you manage your financial risks and lower concerns that can lead to the shut down of your business operations.
Drew Houston, the founder of Dropbox, is one such person who sought financial advice and support during his company’s early stage. This helped him develop a robust company plan, effectively manage cash flow, and tackle financial challenges that were complicated in nature. As he sought expert advice, Houston was able to win early-stage capital, which enabled him to grow Dropbox into a multimillion dollar organization.
Last but not the least, you need to review your financial strategies and update it with time. It will ensure the strategies align with the growth trajectory of your company and market conditions. You just have to review your finances, evaluate your investments’ effectiveness, and alter your strategy according to internal and external influences. You may also be required to devote additional resources to hiring and infrastructure to help your company grow.
Conclusion
Keeping your businesses afloat requires a lot of changes and alterations to your financial strategies. If you are just embarking on your entrepreneurial journey, it is important to know the basics of financial principles that will help your businesses sustain for long. Furthermore, you need to invest in quality web design services to enhance your online presence and keep yourself up-to-date, which will further help your business survive harsh times and utilize great opportunities to earn profits.
