5 Budgeting Tips for Young Entrepreneurs

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Some people believe that starting your own business should be done when you gain enough experience already; after you have spent years observing how other businesses work by working under other entrepreneurs.

That’s not to say that you can’t be a young entrepreneur and succeed. There are numerous startups that can attest to that. Of the key elements of a business plan, though, there is one aspect that a lack of experience can prove detrimental. Budgeting.

Fortunately, there are budgeting tips that you can practice to ensure your business’ financial health.

1. Keep business and personal funds apart.

The biggest sin that you can commit against your finances, both business and personal, is to mix them together. You must learn how to draw the line between the two and have the discipline to dedicate them to their own purposes even if one of them should fall short.

For instance, you must avoid using your personal money to make the ends of your business meet. At the same time, you must never touch the funds dedicated to your business for personal reasons.

We understand that this can be difficult to do, especially during emergencies. However, keep in mind that this is one of the most common reasons why new businesses fail.

2. Keep yourself organized.

Following the previous point, we understand that there are those who don’t really spend their business money for personal reasons on purpose. It’s just that they are not organized enough to keep these accounts separate.

Organization is an essential skill if you’re an entrepreneur. It will save you from countless headaches. For instance, you must figure out a system to keep receipts, documents, and other important paperwork.

We highly recommend using a digital platform to do so, preferably stored in a cloud. Paper can always get lost, wet, or burned. A digital system will keep it safe. Those who are worried about unauthorized or malicious access to their files can invest in added cybersecurity features.

3. Set aside money for taxes as they come.

Speaking of receipts, one of the most important reasons why you should keep all of your receipts is for taxes. Take your tax game a step further by setting aside money for your taxes as they come.

Again, don’t use these funds for other reasons except for their purpose and put them in their own savings account. Tax computations do vary from time to time, but the usual formula is 35% of your net revenue or 20% of your gross monthly revenue.

4. Find alternative solutions for your business needs.

Failing to separate accounts and setting aside money for taxes are not the only pitfalls of inefficient budgeting. After all, what budgeting primarily seeks to prevent is overspending. Hence, as our fourth tip, we highly encourage you to find alternative solutions for your business needs.

List down all the things you need to start your business. It could be pieces of equipment, furniture, and office space. Then, think of alternative ways that you will still be able to gain access to them without spending a lot.

For instance, pieces of equipment and furniture can be borrowed or bought second-hand. You can also consider sharing an office space with another business in exchange for providing a free service. Or you can just skip renting a space altogether and just run your business from a home office, renting shared office spaces as needed.

5. Establish an emergency fund for your business.

We also recognize the limits of budgeting. There are simply unforeseen circumstances at times that necessitate going beyond the budget. This is the reason why we highly suggest building an emergency fund for your business.

An emergency fund is a savings account that is usually established to protect personal finances. The rule of thumb is that it should be at least three times a household’s monthly needs so just in case something drastic happens, like job loss, the family will still survive for three months comfortably (even with no money coming in) and have time to resolve the issue.

The more money you have in your emergency fund, the better.

It is ideal to have an emergency fund for your business as well. It should at least be enough to let your business sail through for a few months until your affairs are in order, again, if something unexpected happens.

We have seen a lot of businesses fall during the recent health crisis because it happened so suddenly and unexpectedly. Having a safety net to fall back on would have made a difference.

Here’s the question, though: how much would it be? It should allow your business to hold on for a few months even without activity or go on standby to reopen when things get better. You can also base the ideal amount on your risk management plan.