Starting up a business can help you achieve your financial and personal goals, but it also involves considerable risk. If you’re not careful, your startup could end up turning into a financial disaster. Here are four ways to protect the finances of your small business.
Use Debt as Little as Possible
While it’s not always easy, avoiding debt is one of the best ways to keep your small business away from financial catastrophe. If you don’t carry much debt, you’ll be able to reinvest more money into your business and avoid the difficulties that come with making monthly payments to creditors. This may mean starting small or finding creative ways to start your business on a shoestring budget, but limiting debt as much as possible is arguably the surest way to protect your startup financially.
Build a Cash Reserve
Unexpected expenses will crop up in the life of any business. The trick is to have some extra cash on hand to deploy when these expenses arise. Much like a personal emergency fund, a business cash reserve gives you options and flexibility when the unexpected occurs. Putting back some of the cash generated by your business will ensure that you can pay for most sudden expenses out of pocket without scrambling to find financing.
Get the Right Insurance
Like a cash reserve, having the right insurance policy is a prudent way to manage risks in your startup. Consult with a startup insurance broker to find out what types of insurance coverage you need. As with any other type of insurance, you should also shop around to get the best rate on the coverage you need.
Have a Good Lawyer on Your Side
Having the right business attorney can save you from the costs of lawsuits and other legal difficulties. For a small business, a single lawsuit can be disastrous. Keeping a qualified business attorney on retainer can help you navigate legal issues and ensure that you aren’t exposed to unnecessary legal risks. Ideally, try to find an attorney who specializes in business law and who has experience working with startups in your industry.
By taking these four basic steps, you can shore up your startup’s financial defenses. Keeping your business afloat is all about managing risk and not biting off more than you can chew. Putting a little effort in now can make sure that your business survives the financial challenges it will likely encounter at some point.