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How can you build a strong financial foundation for your small business?

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Building a strong financial foundation for your small business is crucial for its long-term success and sustainability. Without proper planning and management, you may run into cash flow problems, debt, and tax issues that can jeopardize your operations and growth. In this article, you will learn some practical tips on how to bootstrap and self-fund your small business and avoid common financial pitfalls.

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Joshua Bloom

Audit Director | Not-for-Profit | Manufacturing
Veshali Patel (FCCA)

Fueling business success one slice at a time! Your success begins with us – and yes, I do like pie! Let's ensure you…

1 Know your numbers

The first step to building a strong financial foundation is to know your numbers. You need to have a clear understanding of your revenue, expenses, profit, and cash flow. You also need to track and measure your key performance indicators (KPIs) such as customer acquisition cost, retention rate, and return on investment. By knowing your numbers, you can make informed decisions, set realistic goals, and identify areas for improvement.

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Joshua Bloom

Audit Director | Not-for-Profit | Manufacturing
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Startups I’ve spoken to have not figured out their cash burn rate and runway. The cash burn rate shows much much money they are spending per month. The runway calculates how long they can stay alive. If you can’t stop the bleeding before you run out of runway, you’re done. You need a plan to either extend your runway, slow down the burn, or start becoming cash flow positive.

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2 Create a budget and stick to it

The second step is to create a budget and stick to it. A budget is a plan that outlines how much money you expect to earn and spend in a given period. It helps you allocate your resources, prioritize your expenses, and control your cash flow. To create a budget, you need to estimate your income and expenses based on your historical data, market research, and projections. You also need to review and adjust your budget regularly to reflect any changes in your business situation.

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Joshua Bloom

Audit Director | Not-for-Profit | Manufacturing
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Failing to plan is planning to fail. A budget is your plan of what will happen during the upcoming month. It’s a best guess, and you’re going to never get it right. What’s important is that you understand why your budget variances happened?

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3 Separate your personal and business finances

The third step is to separate your personal and business finances. This means that you should have separate bank accounts, credit cards, and accounting systems for your personal and business transactions. This will help you avoid mixing up your funds, overspending, and missing tax deductions. It will also make it easier for you to track your business performance, file your taxes, and apply for loans or grants.

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4 Build an emergency fund

The fourth step is to build an emergency fund. An emergency fund is a savings account that you can use to cover unexpected expenses or income losses that may arise in your business. It can help you avoid taking on debt, dipping into your personal savings, or shutting down your business in case of a crisis. To build an emergency fund, you need to set aside a portion of your income every month until you have enough to cover at least three to six months of your essential expenses.

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Veshali Patel (FCCA)

Fueling business success one slice at a time! Your success begins with us – and yes, I do like pie! Let's ensure you always get the biggest slice.
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I find that if you automate savings then you don't notice the money not being in your main account. Setting up automatic transfers to a savings account as soon as you receive your income ensures consistency and eliminates the temptation to spend the money before saving. Many challenger banks have a "pots/spaces" function where you set up rules for money that comes in to be moved automatically to various pots/spaces, like savings account, this makes it even easier to build an emergency fund.

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5 Invest in your growth

The fifth step is to invest in your growth. While bootstrapping and self-funding your small business can help you save money and retain control, it can also limit your potential and opportunities. To grow your business, you need to invest in your marketing, product development, customer service, and team. You can use your profits, savings, or external funding sources such as crowdfunding, angel investors, or venture capital to finance your growth. However, you should always weigh the costs and benefits of each option and choose the one that aligns with your vision and values.

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6 Seek professional advice

The sixth step is to seek professional advice. Running a small business can be challenging and complex, especially when it comes to financial matters. You may not have the time, skills, or knowledge to handle everything on your own. That's why it's important to seek professional advice from experts such as accountants, lawyers, financial advisors, or mentors. They can help you with your bookkeeping, taxes, legal issues, financial planning, and strategy. They can also provide you with valuable insights, feedback, and connections that can help you grow your business.

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Veshali Patel (FCCA)

Fueling business success one slice at a time! Your success begins with us – and yes, I do like pie! Let's ensure you always get the biggest slice.
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The role of a qualified expert such as an accountant is paramount. Their expertise ensures strict financial compliance, enabling you to navigate complex regulations while maintaining confidence and adhering to strategic financial planning. A proficient accountant not only saves time and money but also mitigates risks, facilitates scalable growth, promotes data-driven decision-making, and ultimately provides the peace of mind necessary for you to focus on innovation and market expansion. In short, choosing a qualified accountant is a strategic imperative, safeguarding your business foundation and fostering long-term success.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you build a strong financial foundation for your small business?

1

2

3

4

5

6

7

1 Know your numbers

2 Create a budget and stick to it

3 Separate your personal and business finances

4 Build an emergency fund

5 Invest in your growth

6 Seek professional advice

7 Here’s what else to consider

Small Business

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How can you build a strong financial foundation for your small business?

1

2

3

4

5

6

7

1 Know your numbers

2 Create a budget and stick to it

3 Separate your personal and business finances

4 Build an emergency fund

5 Invest in your growth

6 Seek professional advice

7 Here’s what else to consider

Small Business

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