Financial Decisions Every Entrepreneur Faces 

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For entrepreneurs, no skill is more important than financial management. You could have great business ideas and strong communication skills, but you will never succeed if you are bad with money. Entrepreneurs who are intelligent and shrewd with money will be able to achieve high levels of success and can turn even a modest business into a lucrative business venture. Every entrepreneur must make numerous financial decisions on their journey, and it is vital that they always make smart decisions in these situations. This post will explore every entrepreneur’s financial decisions and offer advice on how you can make the right move. 

Is Now The Right Time To Start A Business?

One of the first decisions an entrepreneur must make on their business journey is whether or not now is the right time to start a business. It is important to consider factors such as the economic conditions and your current life situation – if you plan to get married or have a child soon, you might want to wait a while. 

It is also an important financial decision as you must always start a business from a position of financial stability. You should never start a business because you need money quickly, as it can take a number of years for a business to get off the ground and make money. This is why many entrepreneurs continue working and building their startups in their free time. You can then make the jump across when the time is right. 

If you need advice relating to your personal and/or business finances, you can always speak to Financial Advisers. You can find FCA-approved advisers who can offer expert advice based on your specific situation and goals. It is vital that you make intelligent personal and business finance decisions, so sometimes, it is best to speak to experts. 

Do You Have A Big Enough Emergency Fund?

Leading on from this, it is vital that you have an emergency fund you can use. This is an emergency fund for both your personal finances and business finances. These emergency funds can be used to manage any quiet periods or sudden unexpected costs you have. Not only can these emergency funds provide important financial cover, but they can also provide peace of mind and reassurance, knowing that your personal and business finances will be able to manage challenging situations. Generally, it is recommended you have between 3 and 6 months worth of expenses in an emergency fund. You should keep these in an easy-access account (try to find one with a good interest rate to boost your pots). 

How Will You Fund The Business?

One of the most important business decisions is how you fund the startup. You need to calculate your startup and ongoing costs, secure enough funding to build the company to a high level, and have enough money until you find your feet. You do not want to run out of money before your business has had a chance to find success, so it is vital that you work out how much money you need. You can then consider the best way(s) to fund your startup, which includes:

  • Personal Savings: Also known as bootstrapping, using your own savings is an effective way to fund your startup, as you will retain complete control. However, you will be risking your own money, which could limit the growth speed.
  • Loved Ones: Many people will also turn to friends and family. While this can help you raise funds quickly and easily, it can be risky and damage personal relationships.
  • Angel Investors: Angel investors are a good option as you can get significant financial backing, advice, and mentorship. It can be challenging to convince angel investors, but you will have to give up some equity.
  • Venture Capitalists: Venture capitalists are firms that can invest large sums in companies with the potential for large returns. Again, it can be challenging to convince venture capitalists, and you will have to give up some control, but you can get all the backing you need. 
  • Bank Loans: One of the most popular options is to take out a bank loan. This allows you to raise all of the funds you need without giving up control, but you must consider the repayment terms. 
  • Crowdfunding: Crowdfunding is a growing popular method as it can be so effective. Platforms like Kickstarter allow you to raise money online from a high number of individuals and investors – the global reach means that even small investments can add up if word gets out. Additionally, crowdfunding is an effective way to raise awareness about your project and create excitement. 

How Will You Budget Expenses?

Much like personal finances, it is wise to have a monthly budget in place. A monthly budget allows you to control your spending and understand exactly where money is spent. Therefore, you need to take time with your expenses and find the best ways to allocate your resources. It is wise to prioritize spending, avoid unnecessary expenses, and explore your options to find the best value for money – remember that the cheapest is not always the best. It is also important to regularly review your budget and look for ways to make savings to improve your bottom line. 

What Is Your Pricing Strategy?

Another key decision will be your pricing strategy. This is all about striking the right balance – you want to make your products an appealing price for your target audience, but you also need to charge enough so that you make a profit. Conducting a competitor analysis to see what your closest competitors are charging and then pricing your products competitively is important. You do not want to change your product prices often, as this can deter customers, so it is important to take your time and establish the right amount before launching to strike the right balance of profitability and competitiveness. 

What Insurance Do You Need?

It is vital that you have sufficient insurance in place prior to starting a new venture, like launching a lawn care business. Although it can be a major expense, such as the lawn care business insurance cost, it is better to be safe than sorry when it comes to insurance. A new business faces many threats and hazards, and if you do not have insurance in place, it could be very difficult to manage if you find yourself facing one of these threats. With sufficient insurance, you will benefit from financial protection and peace of mind. The type of insurance you need will depend on your industry and operation, but a few of the most common types include:

  • General liability
  • Professional liability
  • Product liability
  • Business interruption
  • Workers’ compensation
  • Property 
  • Commercial auto
  • Cyber

How Will You Track Your Finances?

Another important decision is how you will track your finances. It is vital that you monitor all incoming and outgoing money and maintain accurate records at all times. This is so that you can get a good overview of your finances, but also in terms of legal compliance. You could use accounting software for this, or hire an accountant/outsource accounting. 

What Is Your Tax Strategy?

Leading on from this, you must also develop a tax strategy. You must understand your tax obligations and have a strategy for setting aside this money and paying your annual tax bill.

How Much Will You Pay Your Staff?

Determining how much you will pay your staff is also a huge financial decision. As a startup, it is vital that you can attract talent to your business and retain this talent. This is not easy, though, especially when competing against much larger brands that can offer more money. This is why you must pay a competitive wage and offer perks that will make your startup an appealing place to work, such as career development, flexible work, and more responsibility. When deciding how much to pay your staff, there are various factors to consider:

  • Competitor wage rates
  • Budgetary constraints
  • Employee roles
  • Minimum wage laws
  • Perks
  • Performance-based compensation

It is also worth considering outsourcing as much of the operation as possible. Outsourcing is an intelligent financial decision as you do not have to pay wages and other employee costs. However, you can still get various tasks and even entire departments handled by experts. A few areas of the business that are worth outsourcing include:

  • Admin
  • HR
  • IT
  • Customer support
  • Accounting
  • Marketing
  • Research and development
  • Legal services

How Much Revenue Will Be Reinvested?

You also need to decide how much revenue you will reinvest back into the business. Growth is critical for long-term success and achieving your goals, so you want to invest some of the money you generate into the business. This is an excellent way to fund growth as it is self-sustaining, and you do not have to take on debt or give up equity in the business. Of course, you need to work out how much you can afford to reinvest into the business and determine the best areas to reinvest. A few of the best areas that can always benefit from investment include:

  • Technology
  • Research
  • Marketing
  • Employee training and development
  • Sustainability
  • Office upgrades
  • Emergency fund

Smart financial management is critical to success in the business world. This means that entrepreneurs need to be good with money to find success and make intelligent financial decisions. The above are the main financial decisions an entrepreneur must make at some point during their journey. It is important that you always make intelligent, informed financial decisions that will guide the business to success over the long term. Many financial areas need ongoing attention and management, but you can guide your business to success when you know how to make the right decisions. 

Conclusion

Astute management and strategic decision-making are pivotal aspects of entrepreneurship that demand attention, especially in finances. Entrepreneurs face myriad financial decisions that can significantly impact the trajectory of their business ventures. From determining the right time to launch a business to ensure financial stability through emergency funds to making informed choices about funding, budgeting, pricing, insurance, and financial tracking, each decision plays a crucial role in the sustainability and growth of a business.

Moreover, understanding the importance of a well-thought-out tax strategy, fair employee compensation, and the judicious reinvestment of revenue are essential to successful financial management. By prioritizing smart, informed financial decisions and seeking expert advice when necessary, entrepreneurs can mitigate risks and steer their ventures toward long-term success and profitability. The entrepreneurship journey is fraught with challenges, but entrepreneurs can turn their visions into thriving enterprises with the right financial acumen.

I'm Allison Dunn,

Your Business Executive Coach

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