Being financially literate is one of the most important aspects of starting a business. It means understanding the basics of financial planning and money management. Without this knowledge, making sound financial decisions that will benefit your business can be challenging.
Here are some of the key financial concepts every entrepreneur should know:
- How to read and interpret financial statements
- How to budget and track expenses
- How to forecast future income and expenses
- How to assess risk and make investment decisions
These are just a few topics you will need to know to make informed financial decisions for your business. Having a solid foundation in financial literacy is vital so you can make intelligent choices about your business’s finances.
It will also be necessary to determine your business finance tools. Here are a few things you might have to secure before starting operations.
Everything about your business finances starts with a business bank account. It will be essential to choose a bank that offers services and products that fit the needs of your business. You will also want to find a bank with good customer service, as you will likely have many questions during the early stages of starting your business.
You can get two critical tools from your business bank account: credit card and checking account.
Your business account should offer a line of credit, an essential tool for managing your cash flow. A credit card will allow you to make purchases and then pay for them over time. It can be helpful when you need to make a large purchase or invest in inventory.
A checking account is where you will deposit your revenue and from which you will pay your expenses. You will want to find a business checking account with features like online banking and mobile deposit. These features will make it easier for you to manage your finances on the go. Fortunately, you can think of plenty of options for your Philippine business bank checking account. Once you find the best one, you can open an account and get started.
Another tool you might need for your business is a loan. Loans can serve various purposes, such as expanding your business, buying inventory, or hiring staff. While you might be incurring debt that way, you can benefit from the borrowed money to jumpstart your operations and make a profit faster.
Here are a few business loans to keep in mind:
- Small business loans: You can apply for a government-backed loan program like the SBA 7(a) Loan.
- Equipment loans: You might need to finance the purchase of equipment, such as computers, vehicles, or machinery.
- Commercial real estate loans: If you’re planning to buy or lease property for your business, you might need a commercial real estate loan.
You can compare different business loan products and choose the one that best suits your needs. Make sure to shop around and compare interest rates, repayment terms, and other features before you decide on a loan.
Aside from loans, you might also be able to get government grants to finance your business. These get typically awarded to companies that promote economic development, innovation, or job creation.
To be eligible for a grant, you must apply and meet specific criteria. The grant amount can vary depending on the program. If you receive a grant, you might have to repay it if you don’t meet the requirements or fulfill the terms of the award.
There are a few things to consider when applying for a grant:
- Purpose of the grant: Ensure you understand why the government is offering the grant and how it can benefit your business.
- Application process: Follow the instructions carefully and provide all the information required in the application.
- Eligibility criteria: Ensure you meet the eligibility requirements before applying for the grant.
- Repayment terms: Be aware of the conditions and terms of the grant, such as repayment terms and deadlines.
Your credit score is one of the essential factors in getting approved for a loan or line of credit. A good credit score shows lenders that you’re a responsible borrower and increases your chances of getting approved for financing. It is almost a necessity for businesses.
There are a few things you can do to improve your credit score:
- Pay your bills on time: This includes credit card bills, utility bills, rent, and mortgage payments.
- Keep your credit utilization low: This means using only a tiny portion of your available credit.
- Maintain a mix of different types of debt: Revolving debt (e.g., credit cards) and installment debt (e.g., loans).
- Avoid opening new lines of credit: Every time you open a new line of credit, it results in a hard inquiry on your credit report, which can temporarily lower your score.
If you’re planning to apply for financing, it’s a good idea to check your credit score beforehand. This way, you can take steps to improve your score if necessary.
By understanding these financial aspects of starting a business, you can make informed decisions about your business finances. It will help you secure the funding you need to get your business off the ground and ensure its long-term success.