Setting up your business for financial success

As an entrepreneur and business founder, you simply must know about business finance, especially if you plan to seek funding for your own venture.

Statistically, you're far more likely to raise money and make sure your business thrives if you understand how to manage your finances. Business finance isn't difficult to get your head around, and in this blog we've gathered together some top tips and useful resources to help you learn the basics.

Decide on your company structure

Did you know that the type of company you start – that is, whether you set up as a sole trader or a limited company – ultimately has an impact on your finances?

The status you choose determines how much admin you'll need to do and the kind of financial records you'll keep. It also affects whether you'll be liable if your company incurs any debt.

As a sole trader, for example, you can gain savings through income tax and national insurance and choose when to take profits out of the business.

If you're a limited company, the business's finances are separate from your personal finances. That way, you can't be personally responsible for any company debts, and you operate as an employee of the company.

Learn more:

• Read our guide to registering your small business

• Find out how to register as a sole trader

• Learn more about the differences between a sole trader and a limited company

Get started with managing your finances

Here are some tips you can use to make sure you have your business finances under control.

• Understand your financial priorities: Managing your expenses, getting paid and setting prices should be at the top of your list of tasks.

  • Learn more about keeping expenses under control

  • Find out how to decide on the price for your new product

  • Get tips on how to price your products to make profit 

• Set up financial and accounting systems: Do your due diligence upfront and set up your financial systems correctly from the outset. Open a business bank account (this helps you, as a small business owner, hold and manage money within a business) and invest in software to help you to keep your business finances in check.

  • Learn how to choose the right accounting software for your small business

  • Learn how to set up a small business banking system

• Maintain accurate records: Be sure to use your banking system, business bank account and accountancy software to track your business funds and generate accurate financial statements.

  • Learn more about bookkeeping and keeping financial records

  • Learn how an accountant can help your small business

• Manage your cash flow by planning ahead: Build an emergency fund, make sure your customers pay their invoices on time, and track your cash flow with cash flow projections.

  • Find out what cash flow means, and how to deal with delayed payments

  • Learn how to create a simple cash flow projection for your business 

Plan and manage cash flow

At the end of the day, you're starting a small business to make money for yourself. That means making a profit from the goods or services you sell. But you can't do that unless you plan and manage your finances and cash flow.

Here are some tips on how best to do it:

• Start with a business plan that lays out what you'll do over the next 12 to 24 months.

• Review your sales plan and pricing model and investigate what it will cost to deliver your products or services.

• Break down your cash flow so you have a view of it on a daily and monthly basis.

• Use a cash flow forecast to review the cash coming into and going out of the business.

• Determine where you can reduce costs. Perhaps you can find a cheaper supplier or increase your prices?

• Remember to prepare for times where cash flow may be low. You can do this by setting aside an emergency fund or looking into overdrafts and business loans.

Securing finance for your business

There are a number of ways to fund a new business, but four of the most common methods are:

1. bootstrapping: funding your business as you make sales along the way

2. funding from your own money

3. applying for a grant

4. getting a loan (from a bank or specialist provider)

Learn more:

• Watch this StartUp Series workshop on business finance

• Find out about securing small business funding from a bank

• Read our guide to getting finance from lenders other than banks

• Learn eight ways to start a business with no money

Relevant resources

• StartUp Series: Mastering finances for success

• Mastering your business finances [WEBINAR]

• Lunch and Learn: How to create money-making habits