Financial Foundations: First-Year Finance Tips for New Business Owners

Few things deter burgeoning business owners from venturing out on their own quite like those first-year finance fears. But remember, just because you haven’t done something before, doesn’t mean you can’t do it. With a bit of grit and determination, and our top finance tips for new business owners, you'll be well on your way to tackling those first-year finance fears like a seasoned pro.

1. Pay yourself a salary

What do small business owners and mothers have in common? A deep-rooted tendency to put everything and everyone above themselves. And just like a busy mom often forgoes feeding herself while cooking a gourmet meal for her family, you may have justified not paying yourself for the sake of your business's survival. But here's the thing: just like on a plane where you're advised to secure your own oxygen mask before assisting others, taking care of yourself financially is paramount. So, make it a priority to pay yourself from day one, even if it's just a modest amount. It may seem self-indulgent at first, but it's a crucial step for your own well-being and creates a safety net for those inevitable financial bumps on the road to success.

2. Set a budget and stick to it

Whether you've been budgeting your weekly allowance since grade school or are dipping your toes into Excel for the first time, a well-crafted budget is essential for managing spending, allocating resources, and maintaining the financial well-being of your business. In fact, sticking to a budget is one of our most important finance tips for new businesses. Struggling to figure out a realistic budget in your first year? Homebase has your back. With tools that help you easily project monthly sales, forecast labor costs, and earmark funds for non-negotiable expenses (like payroll and taxes), you'll be crafting effective budgets and managing resources like a pro in no time!

3. Create a cash flow projection

Without getting too technical, a cash flow projection is essentially a financial forecast for your business. Why do you need one? Well, it helps you predict how much money comes in (from sales) and how much goes out (for expenses like rent, salaries, and inventory) each month. Sure, dealing with numbers can be daunting, especially in the early days when funds might be tight. But knowing where your money is coming from and where it's going is crucial for keeping your business afloat—so grab your calculator and start running those numbers.

4. Understand—and track—your cash burn rate

In the early stages of entrepreneurship, expenses can pile up quickly, leaving you feeling overwhelmed with invoices and spending. But blindly paying expenses without proper tracking can spell trouble, regardless of how much capital you've raised. This is where understanding and monitoring your cash burn rate become crucial. Your cash burn rate is exactly what it sounds like, a measure of how rapidly you're burning through cash. To calculate your business’s cash burn rate, follow these steps:

1. Find your starting cash: Let's say your business had $50,000 at the beginning of the six months.
2. Find your ending cash: At the end of the six months, your business has $30,000 left.
3. Subtract your starting cash from your ending cash: $50,000 - $30,000 = $20,000.
4. Determine the number of months: You're measuring over six months.
5. Divide the difference by the number of months for your monthly cash burn rate: $20,000 ÷ 6 = $3,333. Based on these numbers, your cash burn rate would be $3,333 every month.

Identifying your own cash burn rate will help you identify unnecessary expenditures, optimize your budget, and enhance the financial stability of your business.

5. Draw a line between personal and business funds

"Keeping church and state separate" isn't just a saying—it's a practical approach for ensuring business success. When you maintain a clear distinction between personal and business finances (including separate bank accounts and credit cards), it’s easier to stay organized and maintain accurate records. Keeping your finances separate also minimizes your risk for financial and legal complications, such as personal liability for business debts and tax issues. Already charged a few expenses on your personal card? Don’t worry, it’s not the end of the world. Just do your best to keep things separate going forward—starting with a new business account and credit card.

6. Keep an emergency fund

Whether your equipment malfunctions or the market takes an unexpected turn, unforeseen expenses are par for the entrepreneurial course. Establishing an emergency fund from day one ensures you’ll be able to cover these unexpected costs without jeopardizing operations. Is allocating a portion of your limited resources to a “just in case” fund when your expenses are at an all-time high challenging? Absolutely. But, it’s one of the smartest moves you can make as a small business owner. Financial experts suggest businesses set aside six months' worth of expenses. If that’s not possible for you, aiming for a three-month cushion is a great place to start. With this financial buffer in place, you can react swiftly to unexpected situations, minimize reliance on debt, and navigate uncertainties with ease.

7. Consider financing options

Without outside funding, new businesses often face challenges covering basic expenses such as rent and labor, which can make it difficult to get your business off the ground. Fortunately, small business loans and grants exist for this very reason. The difference? Grants are offered by charities or government groups to fund specific projects or initiatives. While there's a bit of legwork involved in finding relevant grants for your business and applying for them individually, they don’t require repayment, so it’s definitely worth the effort. If your business isn’t eligible for a grant or you simply need additional funding, you can apply for various small business loans through the U.S. Small Business Administration (SBA). Keep in mind that these loans require repayment (plus interest)— so it’s important to read the terms and conditions carefully.

8. Stay on top of your books

Finessing finances probably wasn’t one of your main reasons for starting a business, but staying on top of your books is crucial for your survival—especially during those initial years when financial resources are limited. Accurate records help you make informed decisions, ensure you’re paying your bills (and taxes) on time, and provide a holistic view of your financial health. With so much at stake, it’s important to leverage accounting software like QuickBooks to accurately track sales and expenses, organize income and expenditures, and generate financial reports. Think of it as your in-house financial advisor, dedicated to guiding you toward financial success and peace of mind.

9. Take the stress out of payroll

It’s no secret that small business owners wear many hats, especially during the first year. But what many fail to realize is that all those hats are actually full-time positions. And that is especially true for payroll. Between tracking your team’s hours, manually transferring timesheet data over to your payroll system, and filing taxes—handling even a small team’s payroll can be a herculean endeavor. The most stressful part? There’s no room for error when you’re dealing with your team’s livelihood. If you've found yourself struggling to keep up with the demands of payroll management, our small business finance tip is this: first and foremost, it's crucial to show yourself some compassion. Managing payroll is undeniably intricate and demanding. Secondly, it may be worthwhile to explore the benefits of investing in a comprehensive payroll solution like Homebase. From accurately tracking your team’s time to automating payroll and tax filings, Homebase streamlines the entire payroll process (at a fraction of the cost of an in-house team). With one less hat to wear, you can spend more time building a motivated and engaged workforce—and less time stressing over complicated tax forms.

10. Get professional advice

While handing over control of your business finances can be challenging, professionals like bookkeepers and financial advisors can transform your business. From deciphering complex financial jargon to optimizing tax strategies, they ease the burden of managing your finances solo and provide the support you need to take your business to new heights.

Our top finance tip for new businesses: tackle your finances confidently with Homebase

Managing new business finances can feel overwhelming at first, but with the right mindset and business tools, you can tackle those first-year finance fears thanks to our new business finance tips, and create a solid financial foundation that benefits your business for years to come. Get your new business up and running with Homebase.