8 Tips for Managing Money When Starting a Business

Ryan Patrick

Apr 11, 2024 • 7 min read

One of the skills entrepreneurs have learnt subconsciously over the years is money management. The ability to manage and invest funds into the business for its operational activities.

Many startups struggle with money management in the first few years into the business. Entrepreneurship requires tenacity and discipline, which is why new business owners should understand that their new business differs from paid employment.

When starting a business, there are basic principles you have to learn, one of which is tips on managing money so you can have capital. Research says over 60% of businesses close in their first five years. Lack of money management skills is one of the few reasons new businesses close up.

To avoid being cash-trapped or suffering bankruptcy, pay attention to the right tips for managing money when starting a business that will be shared in this article.

What Does Money Management Means

Money management is a strategic approach that involves keeping track of spending, investing, budgeting, banking, and evaluating tax obligations. It is a practice that ensures that value is obtained on anything purchased with money and helps to manage new businesses successfully.

Money management exists in the investment industry where individuals or corporations prioritise savings or money multiplication over spending.

Spending money to satisfy cravings—regardless of whether it makes financial sense to include it in a budget—is a basic human impulse. The goal of money management strategies is to reduce the amount people, businesses, and organisations spend on things that don't significantly improve their assets, long-term investments, or way of living.

In business, money management is all-encompassing as it includes spending on budget, making profits and reintegrating the profit made back into the business. New entrepreneurs who migrated from paid employment to entrepreneurship get carried away by the certainty of funds as expected during paid employment.

Money management when starting a business is crucial. Business needs a certain level of discipline in finance and investment to scale through the early years of entrepreneurship.

What Are The Importance of Money Management

Money management has several advantages which can improve many aspects of your life.

1. Funds Allocation

Money management is useful in the distribution of funds from the budget that is meant to cover costs that are limited to a particular category of expenses and cannot be used for any other reason.

Business owners or managers have a budget strictly for the operational activities of the company. After the allocation of funds has been done, every staff works within the budget to achieve a great result. Managing money when starting a business enables organizations to avoid reckless spending and to achieve more with less.

2. Financial Planning

All corporate objectives, such as increasing profits, growing the business, and expanding services, involve money management, and each objective has a set of procedures that must be followed to achieve it. This includes allocating funds, establishing priorities, delegating tasks, and carrying out user research.

To efficiently make financial plans as a person or business owner, managing money is the first skill every entrepreneur should learn.

3. Cashflow Management

Every organisation has someone or software tools that manage cash flow. This is a very important aspect of a company’s finance and cash flow management. Managing money when starting a business is only possible when you’re able to track the company’s cash flow. Cashflow management ensures the business has adequate cash on hand to fulfil its commitments.

4. Minimize Stress

Stress and anxiety are symptoms of money problems when your finances are in chaos. One can considerably reduce stress by practising the tips for managing money. You’ll stop worrying about bills, debts, and unforeseen expenses when you have an existing strategy and a clear grasp of your financial status. Understanding your finances and managing it effectively gives peace of mind.

5. Increases Organizational Efficiency

The goal of effective money management in a company is to have good credit and stability in the public eye. Organizations should appear weak to either customers or investors. Money management influences operational efficiency by providing a framework for raising the wealth of shareholders and investors. An organization's primary goal is to function well, maximize revenues, and stimulate the economy.

6. For Emergency Funds

Financial planning prepares you ahead of unforeseen circumstances that may occur. Those who effectively plan their finances, keep a separate portion for miscellaneous expenses and emergencies.

It prevents you from obtaining loans or going into debt when unavoidable needs arise.

7. Debt Management

Managing money effectively helps you to operate or spend within the budget. Business owners can obtain loans for business expansion after carefully reviewing the business and seeing the need for a possible expansion.

By budgeting and prioritizing spending, individuals and businesses can avoid accumulating excessive debt and work towards paying off existing debts.

What are 8 Tips For Managing Money When Starting A Business

Money management skills can be learnt, so worry as we explore tips on managing money as a new business owner.

1. Create a business plan

A new business owner must have an existing business plan, and a template to work with after incorporation. This serves as a guide with an inclusive management plan, business structure, financial projections, and marketing strategy. While the reality of businesses may sometimes differ from the documented business plan, it still helps business owners stay on course and work within the existing financial plans.

2. Work with a budget

Establishing a monthly budget for your business expenditure is the first step in managing money when starting a business. This will enable you to monitor your spending according to your budget and prevent reckless spending. For instance, if you set aside a particular amount of money for material purchases and operational expenses, it helps you to manage what you have and execute production while on a strict budget. Having a budget helps you stay on course!

3. Pay Yourself

Many small business owners get carried away and keep all their finances together in one account. They pick money for personal expenses from the same account. Before they realise it, they've devoured a significant portion of business funds from their careless money handling.

Place yourself on salary or wages so that you don’t have to meddle with the company’s finances. As a business owner, you’re first a staff who needs to earn from the company’s income. You deserve to reward yourself, thus it's acceptable to do so.

4. Monitor Cash Flow

Cashflow is referred to as the way money moves into and out of your business. Managing money when starting a business includes monitoring cash flow. It comprises all funds that enter the company through sales, investments, and other sources, as well as all funds that leave the company to cover costs like rent, payroll, and supplies. In case of suspected fraud or bankruptcy, monitoring cash flow helps you to discover where the issues stem from.

5. Software tools to manage finance

Using management software tools is one of the best ways to manage your finances. The analogue method may include errors which may give inaccurate results. So, to monitor and manage your finances appropriately, it is advisable to use management software technology.

6. Plan Taxes

Plan your tax and every legal payment that is mandatory. Leaving the payment or expenditure out of your financial planning leads to spending excess money after the budget has been made. Try as much as possible to avoid bad records such as late tax returns or debts of other legal payments. It gives your company bad credit.

File your tax return early to avoid penalties or charges from the government.

7. Separate Personal Finance from Business

Combining your personal and corporate finances can lead to disorderliness, which can result in overspending and loss of business growth. It becomes tough to track business funds that have been withdrawn and deposited when you combine funds, which makes it harder to keep track of money coming in and going out. If your personal and corporate finances are combined into one account, you may find yourself using your money for business costs and vice versa.

8. Avoid Debt

Debt is one of the fastest ways to destroy a business if not properly managed. This causes headaches for business owners because most debt comes with interest. When business owners are unable to pay debts, they lose focus on the business and eventually affect business activities. So when starting a new business, avoiding debts helps you maximize what you have. Instead, consider applying for grants with the help of our professionals.

Frequently Asked Questions

What Are The Ways To Raise Funds For Your Business

Startup founders always look for ways to raise money for their company majorly for business sustainability and expansion. Raising money for your business means exploring the following options; pre-sale, bootstrapping, crowdfunding, loans, and investors.

Pre-sale: Offering a preorder before the official release of a product or service helps you generate funds early. Big companies utilise pre-sale to make sufficient funds for the development of the organisation.
Bootstrapping: Most entrepreneurs generate funds for their startup through bootstrapping before acquiring large capital from grants, loans or investors. Bootstrapping involves pulling resources from your savings, assets, family and friends to fund your new business.
Crowdfunding: GoFundMe is a common example of a funding site. It involves explaining your ideas or project to the general public to raise funds for you. It is commonly held on social media where people who barely know you contribute their quota to help you achieve your dream.
Loans: Funds can be obtained through loans. Loans are often discouraged, however, business owners who are well-disciplined in managing money can take advantage of loans to support their businesses.
Investors: They are referred to as Angel Investors. These investors provide capital to startups in exchange for ownership equity or convertible interest.

How To Secure Grants For New Businesses

Grants are available for new businesses in the UK. Reasons including reduced costs and free equipment, to cash awards to help your new business grow are great determinants of the type of business grant you should apply.

Firstly, search for Business Finance Support Finder
Check for the finance options that best fit your business.
Then apply.

Once you meet the eligibility criteria, government grants can provide the sufficient funds needed for your business.

Conclusion

In business, money management includes spending on budget, making profits and reintegrating the profit made back into the business. If you have any questions about money management or you'd like to speak with an expert on money management skills, kindly contact one of our Incorpuk experts here today.