3 Key Finance Tips for First-Time Entrepreneurs

When you’re launching your own business, you have a whole host of important financial decisions to make. Here are some tips to make sure you get off on the right foot.
Headshot of author Vikas Agrawal
Vikas Agrawal
Expert Columnist
May 25, 2021
Updated: May 26, 2021
Headshot of author Vikas Agrawal
Vikas Agrawal
Expert Columnist
May 25, 2021
Updated: May 26, 2021

I’ve started and run several businesses — seven in total, with three still running. Building a business is hard work, and it involves a lot of trial and error.

As someone who’s bootstrapped seven businesses, I have made a few financial mistakes repeatedly. That’s how I learned to manage my businesses’ finances better. Here, I’ve condensed the things I’ve learned into three tips to help you avoid my mistakes.

3 Key Financial Tips for First-Time Entrepreneurs

  1. Automate Financial Processes
  2. Keep an Emergency Fund
  3. Focus on Customer Acquisition

 

Automate Financial Processes

Automating financial processes reduces errors and saves time and money when you can’t hire a professional for various tasks.

Think of invoicing: You have dozens of templates for creating business invoices at your disposal today, depending on your tool of choice. With automation, you don’t need to create a new invoice from scratch every time you need to send one. 

Although this may not seem like it saves you that much time, it adds up. For example, if you save one hour a week because of financial automation, you’ll save a full work week over the course of a year.

Some financial tasks that can be automated include but aren’t limited to:

  • Invoicing

  • Bookkeeping

  • Tax reports

  • Payroll

  • Expense management

  • Accounts receivable and payable

You can easily find tools to automate these processes or integrate them with other software to simplify financial tasks for you. Then, instead of spending valuable time copying and pasting in Excel, you can spend more time analyzing the data from your financial automation tool. And it won’t be long before you realize that the setup cost was a small price to pay when compared to the perks you’ll enjoy. I’m talking about perks like reduced costs, higher accuracy in financial reporting, better collaboration with employees and better data for making financial decisions.

More in FinanceHow I Used Economic Theory at Spotify To Disrupt the Music Business

 

Keep An Emergency Fund

A 2018 report revealed that 20 percent of business owners say accessing capital is a top challenge they face. Another study of 600,000 businesses revealed that, on average, small businesses have enough money in savings to meet expenses for 27 days without additional income. This statistic implies that some 300,000 businesses would close shop in less than a month if an emergency halted their ability to make money. The past year has made clear how quickly just such an event can come to pass, too.

Nearly two-thirds of new, small businesses are funded by the owners’ private savings. When you launch your own business and sink your personal wealth into it, cash flow reserves are an easy thing to overlook. But if you’re starting a new business, tailor your budget to set aside as much money as possible for rainy days.

How much is enough? That varies from business to business. But it depends on two factors.

Business Size

If you’re running a sole proprietorship, you’ll need a smaller emergency fund. If you’re hiring people right off the bat, however, aim to build an emergency fund that will cover salaries and other operating costs for at least three months. In the early stages of your business, reducing operating expenses to save more money for your emergency fund might also be a good idea.

Business Type or Industry

If your business delivers the product or service, sends an invoice and waits for payment, you need a bigger emergency fund. Sometimes payments can drag out for weeks or months, leading to cash flow problems.

Additionally, for seasonal businesses, having an emergency fund that can last from four to 18-plus months may be the difference between staying afloat and going under. In such industries, even established businesses experience cash flow issues certain times of the year, so an emergency fund comes to the rescue.

Despite a significant reduction in operating costs in the past year, some businesses are still up and running only because of their emergency funds. Keep one for your business to weather unforeseeable storms.

 

Focus On Customer Acquisition

Ultimately, the most important part of business finance is making sure you have income. After all, you started the business to make money. Your goal should be to activate as many customers as possible to maximize revenue. 

Many first-time entrepreneurs have performed a variation of the Google search “how to find customers for my business.” The possibilities for acquiring new customers are endless. Well, not really, but you’ll easily find lists of 30, 50 and sometimes more than 100 ways to find customers.

Yes, customer acquisition can be tough when you start a new business. But going through 100 ways to find new clients is overwhelming. What are the chances you’ll be carefully processing the 97th item on that list?

Instead of looking at lists, you should prioritize conducting real-world research to see what will work. Businesses often try a few calculated tactics or carry out experiments and then scale whatever’s working. Competitive research will also help you discover how other businesses in your industry acquire customers. 

With a tool like Ghostery, you can discern if a competitor’s ideas or strategies are worth examining. Watch out for these solutions when you use Ghostery on a competitor’s site.

  • Analytics tools: Google Analytics is the most popular.

  • Tag Management System: Google Tag Manager is effective.

  • User Experience (UX) tools: These include heatmap and session recording tools, survey and feedback management tools, and website engagement tools.

  • A/B testing tools: These include any software used for conversion optimization.

Typically, if a competitor has a combination of A/B testing tools and UX tools on their site, prioritize testing their strategies. Often, that is proof that they’re making calculated decisions from fairly accurate data.

Conversely, if a competitor has only a combination of an A/B testing tool and an analytics tool or tag management system, give their strategies secondary attention. This means they do not have sufficient data for accurate tests — they’re probably just winging it.

After deciding which competitors are worth your attention, software like SpyFu, SEMRush, and Ahrefs will help you perform a thorough analysis of your competitor’s site. You’ll see how they’re getting traffic from Google, their profitable keywords and even their Google Ads. You can thus easily see what’s driving revenue for them.

If you’re interested in another aspect of their marketing, say their email marketing, sign up for their newsletter. Sure, you won’t get data from their email marketing software, but you’ll see what types of emails they’re sending and how they’re onboarding or retaining clients.

Your customer acquisition tactics will also often depend on one or more of the following factors. 

Marketing Resources

Your marketing resources include time, employees, your tool stack and your ad budget. Ask yourself, “Do I have time, do I have money or do I have both?” Your answer will ultimately determine the number of customer acquisition tactics you can try.

Time may be the only resource at your disposal, but there’s only so much you can fit into your day. In this scenario, you’ll be more inclined to stick to a handful of marketing strategies because you can’t tell if a particular strategy is working or not if you keep dumping it for the next new or flashy thing.

Without money, you can’t hire marketing specialists, pay for tools or run ads for your products and services. This means that complicated marketing strategies requiring specialized skills, money or specific tools are out of your reach. But when both time and money are readily available, you can cast a wider net with your marketing strategies.

Your Affinity for a Particular Tactic

Some businesses swear by cold calls and cold emails. But I also know many business owners who would close shop rather than cold-call or cold-email a stranger. Your personal preferences and disposition will lead you to certain tactics.

For me, these five customer acquisition tactics have worked well:

  • Content marketing

  • Advertising

  • Pitching clients

  • Customer referrals

  • Search Engine Optimization (SEO)

Your Emergency Fund

Customer acquisition may take longer than planned. The smaller your emergency fund, the likelier you are to try more desperate customer acquisition tactics. It could also be the difference between raising funding and bootstrapping your business.

A smaller emergency fund means that you can’t cover your business’s operating expenses in the face of unforeseen circumstances long enough for your business to recover from such adversity.

For some business owners, this shortage of funds forces them to accept VC money sooner than later. Of course, raising funding isn’t wrong in itself, but you’ll often get better deals from angels and VCs if you can wait until your business is more mature and successful.

Your Location

Some customer acquisition tactics will work better in some geographical locations rather than others. For example, running national ads is a waste of resources if you can only serve your locality. 

Your Industry

Similarly, some tactics work better in some industries than in others. Sure, there are outliers, but you’ll only discover if your business is one over time.

Focus on traditionally lucrative customer acquisition channels in your niche instead of trying to reinvent the wheel from the onset. You’ll save more time and money that way. As your business grows, you can test other channels and scale what works.

It’s easy to find these channels during the competitor research phase. For example, in the web hosting industry, affiliate marketing and pay-per-click (PPC) ads are popular customer acquisition tactics.

You may not have the budget to run PPC ads because cost-per-click (CPC) in your industry may be one of the highest in the advertising world. But you can sign up affiliate marketers, cold email potential clients, create valuable content and ask for referrals from satisfied customers.

Your Product or Service

Finally, customer acquisition tactics vary by product as well. For instance, giving lots of discounts and running giveaways frequently may be counterintuitive if you’re selling luxury products or offering luxury services.

The earlier you find customers, the earlier you can delegate work and decrease the chances of falling back on your emergency funds for business expenses. Just start, and scale any customer acquisition tactics that work.

 

Business Finance Isn’t Rocket Science

Business finance is more complicated than outlined here ,and you’ll discover this as your business grows. But when you’re starting out, keep it simple because building a new business is hard work on its own.

So, arm yourself with these tips, and watch how they improve finances for your new business.

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