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The Savvy Scot

Personal finance and lifestyle blog

4 Financial Considerations Before Starting a Business

By Sara

Starting your own business is exciting. It’s a chance for you to pursue your passion while also making money.

However, many small business owners may fail in the first year because they neglect to take proper financial steps before launching their businesses. Luckily, there are a few things you can do to ensure that you’re set up for fiscal success.

1. Secure a Line of Credit

A revolving line of credit helps many businesses to stay afloat, especially in the first year. This is different from your initial investment or a traditional small business loan.

Lenders extend revolving credit based on their determination of your ability to pay it back. You’ll receive a set credit limit, which you can borrow from as you need. If you don’t use the line of credit, you don’t have to pay anything back. Interest is only assessed on the amount of money you’ve borrowed.

Business credit lines and credit cards are the most common forms of revolving lines of credit.

2. Maintain Cash Reserves

Having enough cash reserves in the bank to stay liquid eases the strain that a slow month puts on your business. Your initial loans can get eaten up fast with start-up costs, and while you may rely on your line of credit, it’s beneficial to have cash reserves just in case.

Cash savings let you avoid having to pay interest on your lines of credit, which can add long-term stability to your company. In addition, a healthy cash reserve may make you a more attractive borrower for banks if you need an additional business loan down the road.

3. Control Your Spending

Sticking to your budget and monitoring expenditures helps you to keep your finger on the financial pulse of your company. You’ll stay aware of trends in supply prices and business demands.

Monitoring your expenses can also alert you quickly if there’s a problem with theft or asset misuse.

4. Use Perceptual Mapping for More Precise Marketing

A successful business isn’t just about minding the pennies — it’s also about knowing your target customer and how to appeal to them. Striving to solve a problem or meet a need of your primary and secondary demographics can help you to craft more strategic marketing initiatives.

If this isn’t your strong suit, find a partner. For example, statisticians and analysts at Research America can help businesses create perceptual maps to differentiate their products from the competition.

Key Takeaways

Before launching your business, write a business plan that includes ways to cover your costs should cash flow problems arise. Secure a line of credit with a reputable lender in case you need to make an emergency purchase. Finally, ensure that your business is poised for success with insightful marketing.

Building this safety net can help you feel more secure when you have a bad week or slow month.

Filed Under: Money

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