Advertising
Advertising

Ask the Entrepreneurs: 12 Ways to Shore Up Your Company Finances

Ask the Entrepreneurs: 12 Ways to Shore Up Your Company Finances

Ask The Entrepreneurs is a regular series where members of those involved in the Young Entrepreneur Council are asked a single question that aims to help Lifehack readers level up their own lives, whether in a area of management, communication, business or life in general. Here’s the question posed in this edition of Ask The Entrepreneurs:

What is one financial resolution that all aspiring entrepreneurs should make for themselves in 2013?

1. Track Your Monthly Income and Expenses

Nathalie Lussier

    This might seem a little too basic, but if you’re not doing at least some bookkeeping on a regular basis, you don’t have your pulse on your business’ numbers. Being able to look at how much money came in and went out in one month is crucial to any startup or aspiring entrepreneur. Even if you’re not bringing much in, you need to know that.

    Nathalie Lussier, The Website Checkup Tool

    2. Increase Your Rate of Savings

    Lawrence Watkins

      Becoming an entrepreneur can be a scary proposition, and one factor that keeps many people from making that leap is finances. If you’re living paycheck to paycheck, then it can be hard to make those tough decisions that may be rough in the short term, but very beneficial in the long term. Once you answer how you’re going to eat and where your’e going to live, you can then focus on your business.

      Lawrence Watkins, Great Black Speakers

      3. Can You Really Live on Ramen?

      Advertising

      Erik Severinghaus

        It’s easy to assume that if you quit the high-paying day job, your expenses will decline in tandem with your income. In reality, that’s a lot harder after you’re used to nicer meals, vacation travel, etc.

        Before you quit your job, figure out what you can really live on for two months and test your ability to stick to that budget. It’s a great way to see if you’ll be happy living on ramen noodles.

        Erik Severinghaus, SimpleRelevance

        4. Take an Accounting Class

        Thursday-Bram

          Even if you never have to do any accounting work at any company you ever start, understanding the basics of accounting will be very useful. Just being able to read accounting reports may save your bacon if there’s a potential issue in your company that your accounting software or a human accountant haven’t managed to pick up on.

          Thursday Bram, Hyper Modern Consulting

          5. Create a Personal Budget

          Advertising

          Derek Flanzraich

            Sometimes, amidst all the startup craziness, entrepreneurs forget to plan and organize their own finances at all. Then, all of a sudden, you’ve ordered expensive sushi delivery for dinner every night and the numbers keep stacking up. Take some time over the holidays to plan out your own budget.

            Derek Flanzraich, Greatist

            6. Join the Peer Economy

            Eric Koester

              The Peer Economy, companies that help you buy, sell, or transact with your peers (think eBay, Etsy, Airbnb, Getaround, Taskrabbit, Zaarly, Odesk or dozens others), is a great way to make money or save money. So participate—either by renting your couch out or staying in an Airbnb place when you travel; finding a developer or selling your services on Elance; or more. But just participate.

              Eric Koester, Zaarly

              7. Give Yourself Permission to Fail

              Dave Ursillo

                Every aspiring entrepreneur should give themselves permission to fail in 2013 because the greatest obstacle that every entrepreneur must (and always will) encounter is fear; especially fear of uncertainty and the unknown. When you give yourself permission to fail—financially or otherwise—you really give yourself permission to try in the first place.

                Dave Ursillo, The Literati Writers

                Advertising

                8. Pay Down Debt

                Elizabeth Saunders

                  If you have personal debt, try to dramatically reduce or ideally eliminate it prior to starting your business. Having lower recurring expenses will give you more freedom to take risks as you build your company.

                  Elizabeth Saunders, Real Life E®

                  9. Real-Time Visibility

                  Robert J. Moore

                    Establish a system to access financial data about your company’s performance on demand and in as close to real-time as possible. This will allow you to feel highly in tune with business growth and tackle challenges as early on as possible.

                    Robert J. Moore, RJMetrics

                    10. Launch Their Company

                    Advertising

                    Aron Schoenfeld

                      Too many people network, brainstorm and whiteboard continuously and just keep adding ideas and layers to their concept. Aspiring entrepreneurs need to draw a line and say “this is our MVP and now we will build it.” Sitting on an idea does not help you or make you any money but building your idea into a product or business will help you validate it and test the marketplace.

                      Aron Schoenfeld, Do It In Person LLC

                      11. Find Great Clients

                      John-Hall

                        Improve profit through better clients. Having great clients really does matter with overall happiness of a company. Make an effort to improve profits by taking on the right clients, not just more clients.

                        John Hall, Digital Talent Agents

                        12. Keep More of the Money You Make

                        Brian Moran

                          Keep more of the money you make! Strive to make sure that your costs are under control, make customers happier, and focus on stimulating repeat purchases from new customers. That doesn’t mean becoming a penny-pincher, but if you have costs that aren’t advancing your bottom line, cut them out! A business is only as strong as the money it keeps at the end of the year.

                          – Brian Moran, Get 10,000 Fans

                          More by this author

                          9 No-Brainer Ways to Track Employee Time Ask the Entrepreneurs: 12 Things Entrepreneurs Should Stop Doing Ask the Entrepreneurs: 9 Best Note Taking Tools Ask the Entrepreneurs: 12 Tips for Mastering Public Speaking Ask the Entrepreneurs: 9 Tasks You Should be Outsourcing

                          Trending in Money

                          1 How to Set Financial Goals and Actually Meet Them 2 10 Steps To Help You Make Your First Million Dollars 3 21 Money Making Ideas to Try At Home Now 4 10 Best Ways to Save Money Faster and Smarter 5 8 Best Finance Apps For Effective Budget Tracking And Planning

                          Read Next

                          Advertising
                          Advertising
                          Advertising

                          Last Updated on November 27, 2020

                          How to Set Financial Goals and Actually Meet Them

                          How to Set Financial Goals and Actually Meet Them

                          Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

                          In this article, we will explore ways to set financial goals and actually meet them with ease.

                          4 Steps to Setting Financial Goals

                          Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

                          1. Be Clear About the Objectives

                          Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

                          It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

                          Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

                          2. Keep Goals Realistic

                          It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

                          It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

                          3. Account for Inflation

                          Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

                          Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

                          For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

                          Advertising

                          4. Short Term Vs Long Term

                          Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

                          As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

                          By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

                          How to Achieve Your Financial Goals

                          Whenever we talk about chasing any financial goal, it is usually a two-step process:

                          • Ensuring healthy savings
                          • Making smart investments

                          You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

                          Ensuring Healthy Savings

                          Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

                          This is the focal point from where you start your journey of achieving financial goals.

                          1. Track Expenses

                          The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

                          Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

                          If you’re not sure where to start when tracking expenses, this article may be able to help.

                          2. Pay Yourself First

                          Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

                          Advertising

                          Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

                          The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

                          Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

                          3. Make a Plan and Vow to Stick With It

                          Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

                          Nowadays, several money management apps can help you do this automatically.

                          At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

                          Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

                          You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

                          4. Make Savings a Habit and Not a Goal

                          In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

                          Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

                          • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
                          • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
                          • If you go shopping, always look out for coupons and see where can you get the best deal.

                          The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

                          Advertising

                          5. Talk About It

                          Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

                          Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

                          6. Maintain a Journal

                          For some people, writing helps a great deal in making sure that they achieve what they plan.

                          If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

                          When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

                          Making Smart Investments

                          Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

                          1. Consult a Financial Advisor

                          Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

                          Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

                          2. Choose Your Investment Instrument Wisely

                          Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

                          Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

                          As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

                          Advertising

                          3. Compounding Is the Eighth Wonder

                          Einstein once remarked about compounding:

                          “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

                          Use compound interest when setting financial goals

                            Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

                            Start saving early so that time is on your side to help you bear the fruits of compounding.

                            4. Measure, Measure, Measure

                            All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

                            If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

                            Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

                            The Bottom Line

                            Managing your extra money to achieve your short and long-term financial goals

                            and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

                            More Tips on Financial Goals

                            Featured photo credit: Micheile Henderson via unsplash.com

                            Reference

                            Read Next