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Helpful money management tips for first-time business owners

Living paycheck to paycheck is a common cycle for many South Africans. People want to save but they also love to splurge. If you speak to any financial advisor, you will see that saving a portion of your salary every month is critical for a comfortable future. However, if you have started your own business or want to launch a unique concept, you need to break away from this cycle. To invest in the future of your career and your personal wellbeing, you will need to live according to a strict budget.

Here are a few tips that will help you to set good behaviours in motion and meet your goals:

  • Understand the importance of being organised

When it comes to being an entrepreneur, you are in charge of your finances. You will need to prioritise planning and organisation skills in order to stick to a goal. Start categorising your savings according to your needs. For example, future and immediate goals. Once you have a plan set in stone, you will need to effectively manage and follow your progress to ensure that you achieve what you set out to achieve.

  • Check your credit record

No matter where you are in the world, having a poor credit score will affect your next move. While saving and budgeting might be the long-term solution, you might want to consider taking out a personal loan to help you achieve your dream faster. Or at least lift it off of the ground. The reason why you will need to settle for personal loans, if anything, for your startup is that banks and financial brokers are wary of granting loans to small businesses. So, the minute you start working steadily towards your financial goals to kickstart your business, you will need to think about requesting a credit report. The outcome will determine your ability to apply for a personal loan, as well as how to improve your credit score.

  • Save where you can

If your business concept or idea is something that you’re passionate about, you will need to make a lifestyle change and do your best to cut back where possible. There are several ways to reduce your spending when it comes to daily habits and spending trends, so you will need to make a conscious decision to help yourself. If you are already running your own business, you need to postpone personal rewards and think realistically about your cash flow. It certainly is exciting when you start to notice an interest in your product or service, but you cannot reap the benefits just yet. Do not burden yourself with salaries, employee benefits or any other traps when your success has not yet been achieved. You will also need to cut your salary and live as cost-effectively as possible to set an example for anyone who is working with or for you. Reduced cash flow is key in the first couple of years.

  • Set long and short-term goals

Setting goals is effective when working towards something. Having a goal in mind will motivate you every day to wake up and do your best to be better and succeed in life. But the problem with goal setting is that people are puzzled by them. Short-term and long-term goals both take time, effort and dedication. You cannot think you’ll achieve your goals in the shortest period of time. Look at the SMART goal setting technique as this will help you achieve the feedback you need to keep moving forward.

Another tip for first-time entrepreneurs is to try to diversify your business by investing in alternative sources. Many business owners try to put all their eggs in one basket, without having a plan B. If you are going to look at personal loans, be sure to have a plan on where you’re going to distribute that money. You can look at a loan calculator or instalment calculator to see how much you’ll qualify for, and based on that, you will be able to put together a failure plan as well as alternative investment plans.

  • Think about finding a mentor

Whether you’re struggling to manage your personal finances or you need some inspiration to go ahead with your business, try to consider finding a mentor during this process. It’s easy to feel overwhelmed when it comes to your finances, and something like this can dent your ego and cause you to feel inadequate. If you want to be an entrepreneur, you will need to consult with someone who can help and guide you. Much like everything in life, managing your finances take practice and time.

Final thoughts

Managing your money for the first couple of years will be a draining process, but once you start seeing the benefits, you will also start seeing the benefits. Starting a business is not easy. There will be times when you want to hit a wall from frustration as well as give up, but you are not alone. Keep pushing through and take advantage of your support system and mentor to help keep you motivated. If you stay focused and determined, you will easily be able to reach for the stars and achieve your dream.

How to carve out a financially stable future

The future is quite terrifying for many of us, since we have little idea what could happen tomorrow. All of a sudden, our life could change because of forces beyond our control. Though we often try to prepare for the worst case scenario, our ignorance – whether willful or not – can still blind us to possible radical changes. To help protect ourselves and our families, we must begin considering ways to create a financially stable future. This will help create a solid foundation which could help lessen any negative effects life throws at us.

Budget and save

The first thing anyone must do when tackling their financial stability is create a budget. This means having firm knowledge about how much we earn against how much we spend. Within this, we can begin creating categories of expenses: necessities, luxuries and so on. By having firm numbers, we can see if we’re spending too much on luxuries and not enough on savings.

Obviously we can’t save what we don’t have – but it could be that potential savings are being squandered on unnecessary items we can live without. We can buy cheaper food, avoid frequent social engagements, drive less and so on. Money Crashers’ budget guide notes that budgeting is key to all financial decisions.

“Once you have an established budget, you will want to keep it in check. The discipline and associated knowledge that you are making good long term and short term financial choices will … take you from living paycheck to paycheck to being able to see the long term results of your disciplined savings and financial planning.”

Learn about investments

The stock market is a tricky beast. It takes years to learn the various mechanisms, rules, players and actions involved. This is why people tend to give their money to brokers and others who work daily with such complicated systems. We should investigate what investments are best for us, depending on our budget and plans. It could be that the simplicity of, say, Sanlam unit trusts are better suited than investing in property.

Work hard, get raises

One of the most important aspects of living is earning enough to live. We have to be able to make enough that inflation doesn’t catch us. Inflation means, basically, the value of our money decreases in terms of purchasing goods and services. R50 today buys far less than R50 of ten years ago. This is why we need to focus on salary increases, since we want to stay ahead or keep up with inflation. The salary we got a few years ago might have been able to maintain our lifestyle, but today, if we have that same salary, we can do far less with it. This is not a sustainable way of living – not to mention this provides no opportunity to save and create retirement possibilities.  

Does telecommuting saves you money?

The ongoing debate about working from home – also known as “telecommuting” – versus working at the office is not clear cut. At first blush, it might appear obviously beneficial, keeping workers happy. And, happy workers mean better outcomes for the business. Everyone wins. Yet, to think about it broadly, from the perspective of the business owner and the staff, we see some interesting, often overlooked aspects.

Money Costs

The most common defence for working from home is how much it saves in terms of costs. If you’re not driving to work, you’re obviously not using petrol, suffering wear and tear on your car and so on. You’re also not dishing out money to buy lunch or breakfast either, since you’ll be at home where, ideally, food is available.

For the business, they’ll be using less electricity, water, parking spaces and office supplies. All this saves the business money, too.

Yet, thinking about it from a broader perspective shows this might be too close-minded. For example, just because you’re not buying lunch at the office doesn’t mean you won’t need food. Since you’re at home, it probably means you’ll need more groceries. Thus, your grocery bill goes up – or rather, you don’t save because the money you used for food at the office just goes into the grocery bill anyway.

Furthermore, working from home means creating a proper office. As Making Sense of Cents notes:

“After deciding to accept the job and work from home, I knew I needed to upgrade my office equipment. My laptop is five years old and can barely handle WordPress. I’m also going to need a printer and a steady supply of pens and notebooks. Electricity costs will most likely increase as well, as you would be home more.”

Indeed, we can’t forget our bills will start to go up, too. This might mean you should consider something like equipment finance to fund turning your home into an office.

Work costs

For a business owner, there’s often hesitation in allowing their staff to telecommute due to the nature of the work. This is especially the case when teams are working together on a project, which require meetings and client input. Employers’ concerns stem from not being able to monitor staff properly.

Yet, each of these concerns are often solved by the use of modern technology. For example, plenty of teams around the world work together, using instant messaging services, shared documents, the Cloud and so on. As Accenture notes, “through the use of collaboration technologies that improve the manner in which work is done, companies have achieved impressive results.”

From something as simple as not having to print a document multiple times to more comprehensive collaboration, work can be done more effectively without physical proximity. There’s nothing inherently better about being in the same physical space as your collaborators but what matters is the work outcome.

Other complaints also don’t hold water. For example, the idea an employer can’t monitor an employee is a bad sign. As Forbes notes, an ideal employee doesn’t need monitoring.

“You are hiring an employee who can get the job done without extensive hand-holding.  As the owner of the company, you have your own tasks to take care of and, when you delegate activities to the individual whom you’re hiring, you don’t want 20 questions, rather you want execution.”

None of this shows definitively that telecommuting is better. It only shows the discussion has nuance to be considered. There are benefits to both sides. What’s important is working from reality, not assumptions about what is and isn’t inherently better. Running a business means being aware of the reality, not what merely “feels” right.

Image source: Shane Adams / Flickr