A big part of whether or not your startup succeeds depends on how you handle your finances early. You can either grow your precious seed money into a strong business through slow and careful spending, or dive in too deep and risk drowning in debt.
A big part of making smart decisions is simply avoiding bad ones. It’s hard to escape the barrage of “secret” tips to get rich and improve your credit, but these are most often completely worthless.
While there are some wonderful, unconventional ways to improve your finances, many of these sources offer tips that could hurt you. There are no easy fixes, and shortcuts rarely come without a price.
The best money management strategies are not particularly glamorous or easy, but they’re reliable ways to build good credit and improve your company’s finances.
1. Don’t overcommit
Many people find themselves in the pits of debt before they realize what’s happening. But there’s a simple way to avoid this: Don’t take on debts that you’re even slightly unsure you’ll be able to handle. Carve out exactly how you plan to pay bills, make payroll, and handle existing debts before making any new commitments. Use a loan or an interest rate calculator to help you plan.
When you do spend money, make sure you’re doing it to meet real needs. Think through each investment, and learn as much as you can before signing off.
Handling your funds wisely helps build good credit, which in turn increases your credit limits and gives you more room to grow. When I first started my business, my credit limit was small, but I only spent money on what was necessary. Over time, my credit limit increased, which gave me more financial flexibility.
2. Document everything
This is not an exaggeration! Make sure anything you buy, sell or get on credit is documented and compiled in one place. You can’t be too meticulous. Good recordkeeping is the backbone of any healthy organization, and that rings true for more than just finances.
There are some excellent software solutions out there to make sure nothing slips through the cracks. Mint.com is one of my favorite tools for seeing the big picture and getting everything in one place. Use Expensify to track your business expenses and keep them separate from personal finances, Google Drive for sharing spreadsheets and the Check app to remind you when bills are due so you can avoid late fees.
3. Don’t let frugality cost more than it saves
It’s easy to dismiss a potential expense because you’re convinced it’s not worth it. For anything that you think your business might need, don’t let sticker shock completely derail your game plan.
If you need graphic design work, but think you can save money by doing it yourself, consider whether it’s really worth saving that money. Your time may be valuable somewhere else. Simplifying your schedule sometimes pays for itself.
For expenses that are pivotal to your business, the cheapest option isn’t always the most cost-effective. While you may think you’re getting a good deal on some essential electronics, consider if those machines will meet your needs and last. You might save money initially, but if they don’t meet your standards in the long run, you might as well throw your money right in the trash.
This type of long-term thinking should apply to every aspect of your finances. The decisions you make today will either bring great rewards down the line, or they’ll come back to haunt you. Even if you’re currently struggling with debt and bad credit, it’s not too late to dig yourself out and get back on level ground. It’s not easy, but nothing about starting a business is.
Entrepreneurs are famous for being passionate and fearless, but they also have to be smart. Unfortunately, being financially savvy doesn’t sound as sexy as being bold and risky, but it can keep you in the game and make your business stronger.