• Finance and Accounting
  • June 20, 2019

10 Finance Rules Every Entrepreneur Should Live By

 

 

There's no doubt being a successful entrepreneur requires expertise in various areas. One of the most critical aspects is having your finances in order. After all, with no money, you've got no business. Here are:

 

10 Finance Rules every SME owner or Entrepreneur should live by.

 

 

 

1. Everyone Owns Finance


Mature entrepreneurs differentiate accounting and finance. Accounting and book-keeping ensure that all transactions are recorded and reported accurately. However, finance drives strategy with an insight. While accounting can be delegated to a specialist, finance is integral to daily activities and decisions. Thus, entrepreneurs shouldn't abdicate financial responsibility and think 'I hired someone for that' or 'Its not my job', 'I am too busy for number crunching.'  Learn important financial ratios, metrics, use common features of your accounting software and spreadsheets.

 

 

2. Keep Track of Your Cash Flow


Maintain a stable budget and stick to it. Make it a habit to check all the statements, expenses, bills, bank statements and tally everything. Doing this will offer control. If you are too busy to do it yourself, hire at least a part-time accountant, invest or upgrade to a good accounting software and track the cash flow at the end of each business day. Doing this will give an insight on when to rein in and rethink your business strategy.

 

 

3. Don't Fall into the Debt Trap


Never splurge more than you intended to. Money saved is money earned. By doing so, you will save yourself from debt trap. The less you spend/owe, the more you earn. The stress of debts will only add to the pre-existing chaos in an entrepreneur's life.

 

 

4. Separate Personal from Business


There's a difference between investing in your business and personal assets. Usually, entrepreneurs attach their future to the success of the companies they operate. Entrepreneurs should use their money to finance their day-to-day passions. However, a lack of diversification can create unintended risks to long-term financial security.

 

 

5. Always Save for a Rainy Day


It is a fact that when you are ready to face the worst, you can handle anything life throws at you. Entrepreneurs should know change is the only constant and adapting will help you sail through choppy waters. So, think ahead and keep a backup plan when things fall apart, financially.

 

 

6. Maintain Your Books


Nothing hurts worse than failing in business because of growth. As you build your company, hire more people and handle more projects, you'll need to manage more moving parts. Unfortunately, entrepreneurs often focus on big-picture expansion, the vision, strategy, long-term and overlook the finer operational, tactical details. Come tax season, fund raising, or tough times, they're left scrambling. By maintaining your books, you will notice trends that can guide your next move, such as cutting costs or deploying more capital in others.

 

 

7. Quarterly and Annual Audits


Quarterly and annual financial statements provide timely financial data to stakeholders. When doing quarterly and annual audits, review the quarterly and annual income statements and compare the data to income and expense records in the accounting system. Compare the current quarter's balance sheet with previous quarters and make note of changes in the last quarter. Compare the company's external bank records against its statement of cash flows. Look into the company's internal control policies related to security and reliability of data used to compile financial statements.

 

 

8. Think Like a Finance Person


You don't need to become a CA, financial analyst or get a degree in accounting, but learn the essentials of spreadsheets such as MS Excel, and use them for forecasts and accounting. Many times, entrepreneurs are too reliant on the accountant - their absence leaves them stranded and in the dark. Learn the basics such as acid test ratio, working capital, and so on.

 

 

9. Follow a Lean Methodology


The lean methodology is all about creating more value with fewer resources. Many think it's only for startups or companies going though tough times. However, it's a mindset that lets you do more with less, be more efficient. And in doing so, you will get things in order, including finances.

A lean organization understands what its value needs to be and thus, focuses on its processes to continuously increase it. The goal is to provide value through a process that has zero waste.

 

 

10. Prepare for the Worst


Regardless of how committed you are, the unthinkable might happen. From serious illness, accident, death of a loved one, natural disaster, fire, theft and so on. It is impossible to be fully prepared for these potentially life-changing events. However, a little planning can go a long way in weathering them successfully.
 

 


As an entrepreneur, be prepared for costs involving insurance for business, car, medical, health, life, staff, property and business continuity. What is the point if an emergency happens and all the finance rules you put in, go out of the window? Make this a part of your finance rules to live by.


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