Founders of new companies are at great risk when it comes to finance. It’s so tempting to plough your life savings into a venture you’re passionate about. Cool heads to prevail, though, and the biggest mistake you can make is not taking sound financial advice.
We’re going to give you a rundown of how you can protect yourself.
Set a Budget
First of all, you should set a monthly budget so you don’t spend all your money at once. This should include what you need to run and maintain the company. Anything left over should be split appropriately, so you can spread it over a longer period of time.
Yes, budgets can be altered, but they shouldn’t be altered lightly.
Think about Your Living
One of the biggest errors people make when starting a company is they only budget for the company. They don’t take into account what they need to live on. You should aim to begin with at least six to twelve months of living expenses in reserve.
This is a good amount because it gives you time to run the company, but it also gives you the chance to bail out if things aren’t going well.
Seek Financing from Elsewhere
You can choose to go it alone, but you don’t have to.
Seek out companies like the money hub. Approach them for financing and see how much support you can get from the beginning. By taking on good debt like this, you can spread out the risk over time.
Of course, you should take sound financial advice from an expert, but this is a far superior option to operating exclusively with your life’s savings.
Bank Account Management
Managing risk is about making sure you aren’t spending too much money too quickly. In the beginning, you can spend more because you have to spend more if you want to start making money. But big financial decisions are often where the battle is won and lost.
Set a proportion of your bank account that you can use per month. A good amount is 20%. Don’t spend more than 20%, except if you’re in exceptional circumstances.
Know When to Quit
The reality is the vast majority of start-up businesses in the UK fail. Whether you’re running an online or an offline business, the odds are always against you. If you do have to pull out, you should be able to do this on your own terms and not because you’ve had to declare bankruptcy.
You need to set some firm guidelines for how far you’re going to go.
This will depend entirely on your personal situation. If you’re a single person with no responsibilities, you can risk more than someone who has a wife and two kids to take care of.
Before you go into business, earmark an amount/proportion of your wealth. Once you go through this amount, you will sit down and have a serious think about whether you’re going to continue or whether you have to accept defeat.
Overall, running a business is about not making decisions based on emotion. The best protection you can have is the ability to take a few seconds to think about your financial choices.