Even though you may be excited to finally realize your entrepreneurial dreams, you may be especially worried about the financial aspect of starting your own business from the moment you decide to do so. Starting a business is an exciting endeavor, but financial challenges can quickly derail even the best ideas. Without enough capital and proper planning, many entrepreneurs struggle to keep their ventures afloat. To give your business the best chance at success, financial preparation is just as important as choosing the right product or service.
As such, more than just deciding what you’ll offer to your market, it’s also crucial to make ample financial preparations beforehand so that, even in its early stages, you can ensure the business’s sustainability, minimize your exposure to risk, and increase the chances of your venture being a success.
But what exactly should these financial preparations entail? A good starting point would be to open a separate bank account for your business so that your early business transactions won’t be mixed with your personal ones. Open a dedicated savings account in the Philippines businesses to track cash flow accurately and keep funds secure.
To further set you on the right path as you start your entrepreneurial journey, here are more some more financial preparations that you should be making:
1) Determine Your Startup Costs
Before launching a business, make a list of all possible expenses to determine the total amount of capital you’ll need at minimum. Startup costs typically cover government registrations, equipment, rental deposits, initial inventory, and marketing efforts. Knowing these costs will help you budget more effectively and eliminate guesswork when determining how much capital you’ll need to secure.
Make sure to do your research on equipment prices, permit and rental costs, and inventory expenses so that your projected costs will be as accurate as possible. Otherwise, you may end up underestimating costs, which can lead to financial shortages, or overestimating them, which results in wasted resources.
2) Secure Sufficient Capital
Next, explore viable funding sources for capital to ensure that your business can operate smoothly for the first few months, even if your profits are not immediate. You can supplement the funds you put in from your personal savings with funding sources such as loans, investors, crowdfunding, or government grants. Just remember that each source comes with its own risks and responsibilities, and it’s up to you to be a responsible borrower and to determine what funding source will best fit your needs.
For example, if you want to focus most of your finances into growing your business first, then a business loan that offers a longer repayment period and competitive rates can be suitable for you, as that would mean lower payments each month.
3) Create a Realistic Business Budget
A well-planned business budget ensures financial stability, prioritizing essential expenses and preventing overspending. As you’re planning your budget, do make sure to account for fixed costs (rent, salaries, utilities) and variable costs (raw materials, marketing expenses). Then, as you continue to run your business, don’t forget to review and adjust your budget periodically based on your actual revenue and expenses.
4) Understand the Tax and Legal Obligations You’ll Have to Meet
Starting your own business in the Philippines will require you to register with various government agencies, such as the Department of Trade and Industry (DTI) to gain rights to your business name, the Bureau of Internal Revenue (BIR) for tax purposes, and your local government unit for a business permit. Failure to comply with government and tax obligations can result in penalties, fines, or even business closure.
Well before you start your operations in earnest, you should be prepared for the fees associated with these permits and registrations. Moreover, be sure you understand the different types of taxes you’ll be required to pay, such as percentage tax, value added tax (VAT), and income tax. If possible, you may consider hiring an accountant to maintain your financial records and ensure consistent compliance with tax obligations.
5) Develop a Pricing Strategy
You’ll also want to set the right prices for your business offerings to ensure profitability while remaining competitive. Note that pricing should cover costs and generate a reasonable profit margin without discouraging customers.
Take the time to calculate costs for your products or services and research market values so that you can set appropriate prices for them. Poor pricing strategies—whether too high or too low—can negatively impact your business sustainability in the long run, so it’s important to settle on a good pricing strategy early on.
6) Set Up an Emergency Fund for Your Business
You should also set up an emergency fund to act as a financial safety net during unexpected situations, such as slow sales periods, equipment breakdowns, or economic downturns. Ideally, your business should have at least three to six months’ worth of operating expenses saved to cover emergencies without disrupting your daily operations.
Without an emergency fund, a business owner may be forced to take high-interest loans or shut down due to unforeseen financial strain. Knowing that, make this a priority in your financial planning.
7) Invest in Financial Education
Financial literacy is vital for business owners of all industries to help them make informed decisions about budgeting, investments, taxation, and debt management. You should then continuously educate yourself through business seminars, online courses, and mentorship programs to better understand the financial workings of your business. A strong understanding of financial principles will also help you avoid costly mistakes and improve the overall financial health of your operations.
While passion is important in starting a business, financial preparation is what will keep it running in the long term. Having enough capital, budgeting wisely, and planning for unexpected expenses can mean the difference between success and failure.
Before you take the leap, take the time to set your finances in order. Your future business and your peace of mind will surely thank you for it.
