Take a closer look at the reality of business finance.
It is well known that a huge percentage of startup businesses fail. There are many reasons this is the case, but perhaps the most common thread is a lack of understanding about how business finance works.
It is easy to assume that business finance works in much the same way as personal finance, but this could not be further from the truth. The world of business money is entirely different, with different metrics to measure success, and vastly different attitudes towards debt.
If you have ever wanted to run your own business, then you will need to cast aside your previous notions of business finance and dig deep into the realities. Below are three of the most common misconceptions about the finance side of running your own enterprise– and the realities behind the myths.
#1 – All Businesses Are Self-Funded To Begin With
You will read plenty of stories regarding “self-made millionaires”; people like Alan Sugar, who began their business with nothing but their own savings and an eye for what might be successful. When you read stories like this, it’s easy to conclude that someone starting in business will be self-funding the majority of their enterprise; that all the money they invest will be money that they have personally earned– surely that’s what “self-made” means?
It isn’t; people who use the term “self-made” are neglecting to mention a simple fact: the vast majority of businesses require external funding from the likes of Unsecured Finance Australia, or borrow money from their parents, friends, or family.
This is good news if you have always wanted to start a business, but have been unsure if you have the capital required. You don’t need to self-fund if you don’t wish to; and in fact, it might be safer for your business if you do use external funding– it guarantees your personal financial survival, and keeps the business affairs separate from your own.
#2 – Debt Is Always Bad
It is a matter for debate whether or not an individual can have “good” debt, but the question regarding businesses has long been answered: business can have good debt, and are in fact encouraged to do so. If a business is in debt, that is by no means a sign of a bad thing.
Most of this debt comes from one of the central tenets of business; you have to spend money to make money. Debt in business comes in investment that, over time, will pay for itself many times over– large stores, bigger facilities, more staff to expand production. Debt in business is treated very differently to personal debt.
If a business is unwilling to go into debt to expand, then there is a good chance that will harm its future potential to make profits.
#3 – Small Businesses Can Manage Their Own Finances
Many small businesses run into trouble when they try to manage their own finances. Business finance is inherently complex; dealing with tax requirements alone requires specialist training. If you are ever tempted to self-manage your business finances, be warned: unless you are a qualified accountant, the chances of error are substantial.
Small businesses should always contract their financial matters out to qualified, experienced professionals. If they don’t, the mistakes they make can genuinely cost them their business.
Hopefully, you now have a better idea of the realities of business finance and what it takes to make a financial success of a small business. If you decide to take the leap, keep the above in mind, and you won’t go far wrong.