Creativity and having a great idea alone aren’t enough to build a successful business. In order to create a sustainable, thriving company, your financial foundation needs to be sufficient and your business has to be protected against potential risks or threats. I’m sharing the steps you’ll need to take to establish a strong financial foundation for your business and help safeguard it against unforeseen challenges.
1. Create Your Financial Plan
A comprehensive financial plan is the cornerstone of your business’ success. Your financial plan should be part of your overall business plan and involve setting up a budget, defining your goals, and determining what success looks like for you.
Consider the following questions when you’re building out your plan.
What are my funding requirements and my budget?
Factor in your startup costs and monthly expenses including marketing, rent, equipment, product production, consultants, payroll, etc.
How will I secure the funding I need?
It’s crucial to have a cash plan for funding your business needs. Decide whether you’ll be bootstrapping your business or seeking external funding. If you’re seeking funding, identify the potential sources and how much capital you’ll require (and how far that capital will go before it runs out).
What is my financial forecast?
Based on your startup costs and ongoing expenses, cash flow, and current revenue, determine your revenue projections and an estimated timeline for when you’ll break even.
Gathering data to support your financial plan is essential, as actions based on perception rather than reality can lead to flawed strategies — one of the biggest mistakes you can make is settling on financial decisions based on assumptions instead of data.
Accessing reliable information can be challenging, so it’s vital to network and get insights from others with similar businesses in order to understand product margins, sales expectations, and operational costs.
Don’t forget to leverage social media platforms like Instagram and TikTok, which are also becoming valuable for sharing industry-specific tips and experiences.
Planning and securing funding, as well as developing realistic projections, will provide a roadmap for your business, helping you make strategic financial decisions. With a solid financial foundation and comprehensive funding and business plan, you’ll be in a great place to grow and sustain your business.
2. Choose The Appropriate Business Structure
The legal structure you select for your business will have important financial implications. See this guide to the different types of legal structures and make sure to consult with a legal advisor before making your decision.
Find a quick start guide to setting up your business here.
3. Open Up a Business Bank Account
Even if you choose to self-fund your business, you’ll want to separate your personal and business assets. This means setting up a separate business bank account dedicated to tracking your business’ income, expenses, and taxes accurately. When choosing a bank, consider the accessibility of physical branches as well as the fee structure. This will help you maintain financial discipline and effectively manage your business finances.
4. Use Accounting Software to Stay On Top of Your Finances
You’ll need to master the art of maintaining accurate financial records and tracking expenses and income to ensure you’re making healthy financial decisions and complying with accounting standards and tax regulations. To help you do this, use an accounting software that works for you and your needs.
From the beginning of Briogeo to now, I’ve used Quickbooks accounting software. What I love about Quickbooks is that it has a very user-friendly, intuitive interface and that its comprehensive accounting solutions continue to be useful as you scale your business from small, to medium, to large.
I also like the Quickbooks Online cloud platform specifically, because it allows you to have multiple users that can manage the software in real-time and from anywhere in the world. The only downside to Quickbooks is that we outgrew the inventory-management software piece. I found that Quickbooks inventory management is not sophisticated or advanced enough for more complex inventory-based businesses.
5. Manage Your Cash Flow Effectively
To keep your business stable and growing in a healthy way, you’ll need to understand your cash inflows and outflows. For a new business, cash support inflows typically come from a separate personal salary or side hustle revenue. It’s important to ensure that these inflows cover your business expenses. If they don’t, you may need to consider loans or fundraising from family, friends, or angel investors.
From monitoring invoices and handling payments on time to identifying opportunities for cost reduction and eliminating unnecessary spending, it’s important to keep a close eye on all aspects of your cash flow. To prepare for unexpected expenses or economic downturns, you should also build an emergency fund for your business. Planning for financial sustainability from the outset is key.
6. Get the Right Insurance to Protect Your Business Financially (and Legally)
Now that you’ve laid the foundation for a strong financial structure, it’s crucial that you take the step to protect your business through securing the right insurance. No matter how much you plan and prepare, starting and growing a business often involves unforeseen circumstances. If and when that happens, you’ll want to have the protection of insurance coverage.
Depending on the nature and location of your business, you might need several types of insurance to safeguard your investment and decrease potential risks. You should work with an insurance professional to determine the specific needs of your business and identify suitable coverage options. Here are a few of the key types of insurance to consider:
General liability insurance
This insurance protects your business from common liabilities including accidents, injuries, or property damage. If one of those events occurs, this type of insurance can help you cover legal costs and settlement expenses.
Property insurance
This insurance is necessary if your business and/or inventory is housed in a physical location. It can cover damage to the building itself as well as your business equipment, inventory, and other assets affected by theft, fire, or natural disaster.
Professional liability insurance
Also known as errors and omissions (E&O) insurance, this insurance is essential if your business provides services. It can protect against claims of errors, omissions, or negligence related to the services you provide.
Worker’s compensation insurance
This insurance is necessary in most states if you have employees. It covers lost wages and medical expenses for employees who have suffered work-related injuries or illness.
Business interruption insurance
Also called business income insurance, this insurance can help you stay financially stable in the event your business is forced to temporarily close. If there is a fire or other covered event like a natural disaster, this insurance may cover lost income and ongoing expenses.
These are just some of the many types of business insurance available. I recommend you work with a business insurance agent to determine which types of insurance your business requires, as well as what your state’s laws are related to business insurance.
As you get ready to introduce your products or services to the world, remember that establishing a strong financial structure and protecting your venture through insurance are critical steps towards setting your business up for success. From planning your finances and managing cash flow to tracking expenses and getting the right insurance coverage, each of these steps can help you create a strong foundation for your business and protect it against potential risks. By combining sound financial practices with comprehensive insurance coverage, you can set your business on a path to thrive.
As you get ready to set up your business, which financial step seems the most challenging? Share how you plan to overcome those challenges in the comments below!
