by Kristen Gramigna, Chief Marketing Officer for BluePay
You may be well versed in the industry you’ve chosen to pursue as a business owner, but less confident about how to manage finances.
Here are some simple tips for handling money as a startup:
1. Keep an eye on cash flow.
Dun & Bradstreet estimates that 90 percent of small businesses fail for financial reasons, most notably, cash-flow problems. Particularly in your first few years of business, you won’t have a sense for when and to what degree, demand and unexpected expenses will fluctuate. Monitoring your cash flow to financially prepare for such events is critically important to your business’s financial stability. To project monthly cash flow, start by accounting for any cash on hand from the previous month. Then, outline whatever payments you expect to receive from various revenue streams in the current month, including client payments, deposits clients will pay for jobs that have yet to kick off and any additional streams of revenue from residuals, licensing agreements, or “one-off” events that aren’t part of your standard business model.
Once you’ve accounted for expected income, outline all monthly expenses, including rent, utilities, payroll, fees owed to contractors and vendors and intermittent expenses, like insurance premiums, travel and entertainment costs and quarterly tax payments you’ll owe to the federal government, state, and possibly, your municipality. Though events may not unfold exactly as planned, an accurate and granular look at your income compared to expenses signals when you need to make financial concessions and strategic decisions that ensure your business remains financially healthy.
2. Take advantage of credit when needed.
Establishing a credit identity for your business that is separate from your personal credit history is important to protecting your personal assets, and ensuring that your business has the credit history it needs to secure loans that support business growth. If the bank you establish your business accounts with offers business credit cards, apply for one for your business (keeping your personal finances out of the application). Use it only to pay for business expenses. Pay the balance in full by each statement due date.
As you use business credit responsibly, the activity will be reported to the appropriate credit-reporting bureaus. Likewise, if your vendors offer credit terms, apply for them. You may not use them all the time, but if cash flow becomes strained, you’ll have the option to delay payments per the credit terms if needed.
3. Establish payment policies and processes.
The sooner customers pay for the work you provide, the healthier your cash flow — but you can’t expect “on time” payments if you lack formalized accounts receivable policies. At the start of each new business relationship, provide clients with a document that outlines your invoicing and payment policies, including when and how invoices are issued. (Ideally, they’ll be sent electronically to expedite the process and minimize hard costs). Clearly define when payment is due (indicating the exact due date, free of jargon like “net ten”), and which forms of payment your business accepts.
Adhere to the schedule your policy outlines when issuing invoices, including imposing late fees, or honoring early payment discounts as described in your policy. Check the credit of any vendors before extending a credit line to protect your business against the risk of their potential default.
4. Leverage the tools that facilitate financial growth.
You needn’t invest in pricey point-of-sale terminals to give customers the payment options they prefer and may rely on to pay your business in a timely manner. By accepting mobile payments through a secure payment processor, you can accept credit or debit cards by way of your smartphone or tablet device, anytime, anywhere — including the moment jobs are completed at a client site, in your brick and mortar business environment and remotely, at trade shows, festivals and mobile events. Fees are nominal (usually ranging from about 1 percent to 3 percent of the transaction amount), and funds are electronically disbursed to your accounts, typically in less than 72 hours.
Kristen Gramigna is Chief Marketing Officer for BluePay, helps new business find the right billing and invoice processing solution. She brings more than 15 years of experience from the bankcard industry in direct sales, sales management and marketing to the company and also serves on its Board of Directors.