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It will come as no surprise to you but running a business costs money. But how much money a business costs is usually more affected by the way the finances are managed than the type of business it is.
Smart money management is the center point for any successful business. Knowing what you need to pay, where you can make savings and when it is sensible to invest is crucial to keep the business afloat and profitable. Even if financial dealing doesn’t come naturally to you, having a basic understanding of what is required is essential for any worthy entrepreneur.
Every business requires some form of investment to set it up. This investment might come from personal savings (if you are lucky enough to be able to afford it) or, more likely, it will come from a business loan.
Finding the right loan is the first step and reading a few reviews of each company is essential. For example, different Everest reviews might highlight different features or explain the pros and cons in other ways. The more information you gather, the better an understanding of the company you will get.
Of course, you must be sensible with your investment. A good investment will help you improve your profitability through better efficiency, higher quality production or even better trained staff. Whatever you invest in, make sure that you first do a cost-benefit analysis before you get your credit card out!
Saving money is important for everyone and in business, the lower your costs are, the easier it will be to profit. It’s surprisingly easy to throw money at a business and hope that it works but, again, a cost-benefit analysis can show up the areas where you aren’t getting the return you want.
Implementing simple savings strategies from the outset is the best way to manage your company finances. For example, you might invest in a system to automate some processes early on and then save on a salary year on year. Similarly, renegotiating with suppliers, searching for cheaper alternatives on a regular basis and streamlining all your processes will help to bring costs down.
Needs Vs Wants
When you are balancing the books, the needs vs wants principle is really useful for prioritising spending and budgeting. In personal finance terms, a need is a necessity you must spend on such as rent or food but a want is something you desire like a new handbag. There is some crossover here too. For example, you need a drink but do you need an expensive coffee or could you settle for a bottle of water?
In business, needs and wants are obviously a bit different. You need to pay tax so that must be in the budget but do you need to buy a brand new sign or redecorate the office? When you are balancing the books, you should always start with the payments you need to make. Then when you are confident those payments will be met, you can budget for other things including upgrading technologies, marketing and making your staff happy.