You may have been thinking of starting a business for some time. You’ve spoken to some great potential partners, and you have a good sense of the market for your product. While it’s tempting to dive right into it, many start-ups run into difficult financial woes shortly after launching. It pays to carefully consider how you plan to finance the business while you navigate the business environment.
Here are five areas to consider before you commence operations:
- Your Personal Finances
As an entrepreneur, you are the captain of your ship. Keeping your startup afloat requires personal sacrifice on your part, especially when it comes to your finances. You may have to live on an unstable and meager income at the beginning, so it’s necessary to build a reserve for lean months and periods with uncertain cash flow.
Assess your current financial situation by looking through your savings, monthly and yearly expenses and investment portfolio. Take stock of your household budget and make projections on how business operations will impact your personal spending. This will give an indication of whether you might have to spend less. Don’t forget to take into account items such as insurance premiums paid annually, which might not be reflected in the monthly household budget.
- Business Costs
Aside from the obvious expenses such as rental and furnishings, there may be other equipment and supplies that need to be leased or bought depending on the type of business you’re setting up. Think through your business’ needs and set aside an adequate budget.
It’s also important to calculate your working capital – the sum required for the day-to-day operations of your business. This requires meticulous planning so as to prevent any catastrophic surprises, as new businesses cannot rely on a steady flow of customers to sustain its expenses.
- Separate Accounts for Personal and Business Use
As the owner of a startup, you will often find yourself having to use your own bank account for expenses. It’s thus important to have separate accounts for personal and business use to prevent uncertainty down the line, as you can easily distinguish deductible business expenses from personal ones. It’ll also ensure that your taxes are easier to file and that you get as much money as possible through your tax return.
- Tax Liabilities
Taxes are often an afterthought as entrepreneurs naturally focus on getting things up and running and turning a profit. However, neglecting to plan and set aside money for taxes can significantly affect your company’s financial health. Ensure that you understand which taxes you are responsible for and plan accordingly to avoid a headache at tax time.
- License Fees and Insurance
Depending on the nature of your business, there might be different licenses and permits required before you can legally operate. In Singapore, thankfully, applying for these is a fairly straightforward affair. Entrepreneurs can submit multiple applications to relevant government agencies through the Online Business Licensing Service.
Apart from legally required insurances – such as the work injury compensation insurance for all manual workers as well as non-manual workers with earning less than $1,600 per month – it’s also prudent to secure adequate insurance for your business. Many local insurers offer packages tailored for SMEs’ needs, protecting your business from losses incurred due to fire, theft, work injuries and more.
As crucial as it is, maintaining tight control over one’s finances can be overwhelming for an aspiring entrepreneur. New business owners should consider using an accounting software such as QuickBooks Online, which allows you to plan and keep track of business expenses with ease and improve functions such as invoicing as well.
With the opportunities of the New Year ahead, do yourself and your startup a favor and eliminate all your financial worries with QuickBooks Online.