As an entrepreneur, understanding the financial health of your business is crucial to your business succeeding. Having strong financial knowledge and habits will help you handle debt well and grow your funding avenues. This also helps you to recognize any money leaks, anticipate payroll, and so much more.
Business owners who don't have a financial plan and positive financial habits cannot control their business' success or failure. Once you have a solid financial system in place, you'll make better purchasing decisions and manage your money better overall. Below are three financial habits you must adopt to be successful in business:
1. Know where your money comes from and where it's going.
Knowing where your money comes from and where it's going seems logical. However, as an entrepreneur, you might have several areas in your business where income is coming in from. You can rattle this off verbally, or better yet, create a financial spreadsheet so you can see what's coming in and from where. By developing this practice, it will do three things:
It gives you the peace of mind that you won't lose your hard-earned money when things get tight because you're consciously making financial decisions that you can see and predict.
It helps you control your spending habits because you know where the money is going, and you know what to spend your money on—this will give you less motivation to shop around and spend.
If you're using a credit card, this also helps you track your credit card purchases and identify expensive purchases that are taking up your cash. As Lia Lee, founder of UnLit, said, "There are so many solutions, use technology to your advantage, and be selective on the technology that you use, because you can lose yourself in purchasing SaaS."
If you don't know where it's coming and going, how can you track your cash flow and profits while also planning for the future? This takes out the guesswork and keeps you on track to meeting your financial goals.
2. Keep a list of expenses and cut down on non-essential expenses.
It's easy to go over budget. When you keep a list of expenses, this helps you narrow how you're spending your money. Develop a habit of asking yourself, what are your financial priorities? Where's your money going? Why do you need that new software or 3D printer? How much did last month's expenses set you back? Your financial health is essential.
Next, create two categories of expenses that include essential and non-essential items. You can also add a wish list for items in each of those categories so that you can forecast what your business will need. This will allow you to allocate the funds accordingly to purchase these items in the future. Cutting down on non-essential items will create more cash flow for your business.
3. Recalibrate your budget.
You once had a budget, but you haven't looked at it since its inception. Make it a habit to review your budget. Reviewing your budget helps you to shop smarter and keep your expenses from overriding your income. Also, a budget is useless if you don't use it. If your business is operating without a budget, you are working ahead without a net, and this could very well lead to being too underfunded for your success and could cause the business to go under.
Don't forget to tweak your budget and monitor it for any fluctuations regularly. A suggestion is to schedule a bi-weekly or monthly financial date with yourself on the calendar. You now know what's coming and going in your business—what's depleting your funds and what your expenses are so you can create an improved budget based on your present financial findings.
Ehime Eigbe of SweetKiwi says, "It's the little expenses that can sink a whole ship. It's that whole, where you're losing money, and you need to plug that." She constantly reviews the expenses and finds ways to maximize her company's profits, "Keep an eye on your numbers because you can do $3 million in revenue but have expenses of $2.5 million. You're wasting your time," she said.
Setting up good money habits at the beginning of your entrepreneurial journey is critical in avoiding unnecessary hardships and mistakes. This includes positive credit card and banking habits and spending habits when it comes to building a financially successful you to create the business of your dreams.