For entrepreneurs, everything turns out to be a tad difficult to take care of and manage. One of them is finances. While entrepreneurs have anyway signed up for a risky business as this, it becomes more important than ever to take care of their financial situation, which might even go stronger or crumble with time.
It’s all very easy for employees, right? When they take those big fat paychecks back home, it is the entrepreneurs who are left to deal with everything. Right from taking care of his or her business to maintaining consistency in cash flow and financial stability, entrepreneurs have quite a lot on their plate all the time. And it is them who need a great deal of financial assistance to keep their incomes and cash flowing and avoid bad debts.
If you are an entrepreneur dealing with a startup, studying about the risks and implication of a stable financial management system is all the more essential for budding entrepreneurs like you. To say the least, better money management can help you leave a great legacy for your family, and also relieves your stress when it comes to handling the financial books of your company.
Before going ahead, here are some really basic questions that you need to ask that entrepreneur inside you –
- How stressed are you with your current financial situation?
- Is your’s a start-up or an established enterprise?
- Do you have an emergency stash or reserve kept aside, just in case?
The point of the above questions is just to let you know that your answers don’t really matter. Regardless of them being a yes/no, or any other explanation that you may have, you need to stay educated on some essential finance tips for entrepreneurs that can help you stay on your heels and motivate you to keep it together at all times while running the business.
Choose LLC or S Corporation
You must have heard companies with different incorporations, the two most popular ones being the LLC (Limited Liability Company) and S Corporation. And there is quite a difference between these two, especially when it comes to having a control over income taxes, social security and Medicare taxes.
If you select an LLC, you don’t have to pay taxes in the current scenario. However, whatever incomes, deductions, incomes taxes and other taxes are all passed through and levied on the owner’s tax returns, which are your tax returns. Also, self-employment taxes are paid on the entrepreneur’s share of net business earnings.
On the other hand, an S Corporation is straight up on you receiving your salary and paying off other taxes. Also interestingly, self-employment taxes are lesser as compared to the amount under an LLC. So what gains your interest here?
Understand financial statements
Yes, financial statements are any day a very tricky thing to understand, and some people don’t ever seem to get it, no matter how much they try. But as an entrepreneur, you have no choice but to learn and get educated on what those financial statements actually mean and the message that they are trying to convey to you, most of which include-
- Balance sheets
- Income statements
- Cash flow statements
- Shareholder’s equity statements
Just understanding these financial statements will right away solve half the dilemma that you are facing with your financial situations. Also, understanding such important financial documents is the key to stabilizing your financial position and determine where all the money is coming and going from your business.
Open your emergency fund
When it’s business, there are always ups and downs, and you have to be prepared for that. You cannot let ups and downs cause any instability in your financial situation. Therefore, open a cash reserve or an emergency fund in other words, and keep some money aside to help you cope with such distraught events and occasions, as and when they arise. Business is full of risks, and as an entrepreneur, you need to be sharp and wise enough to foresee such circumstances that might put you in a debt-trap. A well-maintained cash reserve will always have your back in case your business tries to take you for a ride.
Apart from just your business, you can put some of your money other important investments and assets that you know will give you favorable returns, at least for a short while. Even better, the returns of such funded investments by you can really help build-up your cash reserve. There is no harm in keeping yourself safe and place funds into other side businesses and smaller investments. In case the market dries up tomorrow, you are already covered.
Don’t be embarrassed to take help
Becoming an entrepreneur means taking a bucket load of stuff and responsibility on your head. Some people manage it, some quite do not. To tackle financial obstacles, it is advisable to take help from either an expert or do some self-learning. Whether it is to understand your financial statements or creating invoices, some extra help and assistance from outside parties can do a great deal in keeping your financial situation right on track.
As it goes, prevention is always better than cure. And when you are into something as risky as entrepreneurship, it is imperative that you stay careful with each and every baby step that you take. As an entrepreneur, you will always have your plate full at all times. However, with some help and knowledge, handling your financial books will not be that a difficult time for you over time. If not, you can always take the help of financial advisors and consultants without any hesitation.