This post is going to be for people taking baby steps in their business during the inception, because I am no expert beyond that stage. I’m sharing what I learnt from my experiences, but I’m sure there is a lot more to add to the list.
I must also add that I am extremely “kanjoos” in the truest sense of the word. If I can do something myself or get something for free, I will, even if it means at the cost of my own time. Today, after running the business for a while, I have learnt that my time is valuable as well so it’s okay to spend a little money in helping you automate processes.
1. USING WAVEAPPS.COM
Before I started the business, I spent 2 weeks trying to find free online softwares that would help me manage finances. Wave apps allows you to input your products with their prices and save customer details, so it becomes rather easy to create invoices and record sales. It also creates reports for you to analyze your monthly revenue, outstanding amounts, etc which proves to be fairly effective till you reach a certain volume in your business.
2. SEPARATING YOUR BUSINESS AND PERSONAL ACCOUNTS
A current account will be opened in the name of your business and a savings account will be in your name. If you direct all your income and expenses through one place, accounting will become a thousand times easier.
It is a common misconception that opening a current account is not possible without a GST number, which is not true. The bank just requires any government document and a proprietorship stamp (literally a stamp made for Rs 100, that says “your name” and “PROPREITOR” underneath) to open the account for you. In my case the document was my FSSAI license. Kotak and SBI said no to me without a GST number – but in my opinion it was because their employees just looked at a young girl and didn’t take her seriously enough. I went to YesBank and opened one without a problem. Too bad the others didn’t get my business, haha!
In all seriousness, it’s important to remember that a current account will give you no interest. So as soon as you accumulate a reasonable amount of income, move it into your savings account. The longer your money just sits there, the more you are losing its value.
3. KEEPING MONEY FOR WORKING CAPITAL & INVESTING THE REST
Now that you have a current account to take care of the usual expenses you may incur, invest your surplus in a place that gains you interest higher than the rate of inflation. These may seem like daunting words, but it’s a very simple concept that I wish I had thought of earlier. If money in the bank is not earning interest higher than inflation – you are basically losing money.
A very easy way of gaining higher interest than a savings account is a fixed deposit. Any bank will have the option of creating an FD easily over call or through net banking. However, it will tie up your money for some time and if you have any larger expenses coming in the future you will have to “break” the FD and will lose interest.
Another low risk instrument that I recently discovered are “ultra-short-term debt funds.” They will allow you to invest for 1-30 days and still gain a higher interest than a savings or FD account. When I heard words like this in the past, I’d most probably run away from the conversation. Now, I’m trying to make smarter decisions and force myself to ask the right people the right questions to learn more about this. Because at the end of the day, after working so hard to earn something – the thought that it is losing value just sitting in one place really scares me. I’ll be happy to share my learnings from these conversations in detail, just DM me @megnajain (shameless plug to my Instagram lol).
4. REGISTERING AS AN MSME
This is honestly one of the most wonderful things created by the government. It took me less than 60 minutes to register as an MSME (now known as Udyog Aadhar). Firstly, the registration does not cost anything. Secondly, it gives you an identity by almost creating an Aadhar number for the business. You can use this document to open bank accounts, apply for licenses, etc. But you may wonder how this is related to finances?
As your business grows, you will realize that payment collection is an issue to worry about. If you do bulk orders with corporates – then even more so. Registering as an MSME also means protection from delayed payments, if a client does not pay for a maximum of 45 days they would be liable to pay you interest. It is a good idea to inform any private limited company that you are working with about the registration beforehand, because they will prioritize your payment.
5. NOT SUCCUMBING TO BARGAINING CUSTOMERS
This may seem like a really obvious piece of advice, but I’ve met many entrepreneurs who tell me they just cannot say no when their friends and family push them to reduce the price. More often than not, you as a business owner will be interacting with customers directly and that gives people the impression that you have the power to give them discounts. If you do it once, word will spread and you will be forced to do it again. Unless we are running a sale or doing bulk orders – I politely decline despite their insistence and I have found that 95% of the people have come back to us to buy because of the quality and service.
Creating a catalogue with fixed prices really helps in being taken seriously, so the client understands that there is a structure and value to what they are buying. Even if you create customized products which you feel cannot have a fixed price attached to it, you can at least create slabs to help the customer estimate a range.
I hope these tips help, please feel free to share more ideas and tools with me about how you managed your small business’s finances!