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A Comprehensive Guide to Money Management Guide

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Starting a business can be complicated for many reasons, especially if you are a first-time business owner dealing with managing the unexpected costs of this new endeavor. If this sounds like something you are going through, then this money management guide is sure to help you become more familiar with the costs of building and financing your business.

Getting Started

Regardless of the type of business you want to create, having your finances in order is one of the most crucial parts of building successful e-commerce or brick-and-mortar business. One of the best ways to go about this is by creating a business plan which should include an expense spreadsheet where you can map out all your current and potential expenses. In this sheet, you should include obvious start-up costs such as:

  • Rent
  • Internet/Website Expenses 
  • Payroll 
  • Inventory

Besides these repeat expenses, you should also try to set aside a sufficient amount of money for emergencies in case any unforeseen expenses come up along the way. Additionally, your business plan should help you put key items into perspective, such as the store’s purpose, audience demographics, your end goals, and of course, financing options.

Funding Your Business

The next step to managing your expenses is understanding the funding options available to you. Depending on how you choose to fund the business, your repayment strategy will vary. The most common ways that businesses get started are through credit, loans, investors, and crowdfunding.  

1. Credit

If you are leaning towards using credit for self-funding but are not at a point where you can ask for a credit increase or perhaps your lacking the credit score required to allow you to qualify for your desired APR or repayment plan, then consider these tips:

  • Use EXTRA to help build your credit history

Extra is the first debit card that helps you build credit. An extra credit card is connected to your bank account, so you can only spend what you have to make everyday purchases while simultaneously increasing your credit score. Even if you will not be using credit at the beginning of your business journey, it is still important to maintain a good credit score in case you plan on expanding at some point or considering it as a backup option if you will be bootstrapping.

  • Become an authorized user

Your credit score can be affected by becoming an authorized user on a trusted person’s credit line. However, for your credit to grow, you have to ensure that the credit card issuer reports the account you are authorized on to three major credit bureaus so that the account you are on becomes part of the credit report.  

  • Pay bills on time

It may seem obvious but paying your credit card bills on time every month is one of the most effective ways to raise your credit score. A smart tip to speed up the process is repaying your credit cards in full so that your credit issuer sees you have a stable income for monthly repayment and are not a liability to them, which will lead you towards a fast track to getting that coveted perfect credit score. This tactic will also help in getting your credit issuer to increase the credit limit they grant you.

2. Loan

Another way to get your business up and running is via a loan. Personal business loans are a good option if you have a well-established credit history and are one of the more traditional ways to start your endeavor since the bank is backing your investment. If you are planning on approaching your bank for a loan, just be aware that the estimated “APR can vary up to 35.99%,” according to NerdWallet.

That is why considering getting a loan from the U.S. Small Business Administration, where although the application process requires extensive information about your finances but will qualify you for lower APR rates, and a longer repayment time might be another option worth considering if you plan on achieving funding through a loan.

3. Investors

Investors are people with high net worth who understand your vision and know the risks involved in helping you pursue your business. Investors will provide you with financial support in exchange for equity or convertible debt. Investors can be nearly anyone from company CEO’s to friends and family. If you are planning on looking to go the investor route, be sure to have your business plan prepared and be ready to pitch your business in a thorough manner to your desired investor, so when it comes time for negotiating your deal with them, you will be prepared.

4. Crowdfunding

Investopedia defines crowdfunding as “the use of small amounts of capital from a large number of individuals to finance a new business venture.” Crowdfunding has become a popular financing method in the last few years due to its online accessibility and the endless access to everyday investors it provides. Unlike regular investors, however, crowdfunding repayment can be made through a reward or equity-based system.  

5. Budgeting

Now that you understand the basics of funding your business and the importance of a business plan, let’s talk about budgeting. Keeping a budget is important for future company growth and can be done on a daily, weekly, or monthly basis.

Once your business is up and running, you should consider creating a budget sheet where you can plan and track your cash flow. This sheet will give you a clear picture of your finances by putting your revenue, profits, and expenses side by side. The information you gain from budgeting will help you in reallocating expenses and give you insight as to what strategies worked over that specified time period.

Knowing how to manage your money effectively will help increase your business’ opportunities for future success. So remember to keep these tips in mind as you set out on your own business venture.  

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