How to Build Your First Balance Sheet as a Startup?

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StrategyDriven Managing Your Finances Article |Balance Sheet|How to Build Your First Balance Sheet as a Startup?If there is one area of your startup that requires maximum attention to detail, it is the financial aspect. No successful business attained the height it has reached by neglecting the details of its financial activity.

Having a detailed financial system in place helps to increase transparency and accountability within the business environment. It also helps to know whether there is a loss or profit and the reasons for such. Most importantly, a detailed report of your startup’s financial activity over a definite period will come in handy when reaching out to investors.

One of three documents that your startup has to draw up every year is its balance sheet. Here, we shall be examining a balance sheet, what it includes, and how to build your first as a startup. Let’s start with what a balance sheet is and what it should include.

A balance sheet is an accounting document where both the credit and debit sides are balanced.

What Should Be On A Startup Balance Sheet

A balance sheet is a comprehensive financial document that examines all the assets, liabilities, and shareholder’s equity that belongs to a startup and how they were used within a financial period.

It provides an analysis of credits and debits and what every penny was used to achieve. If carefully drafted, it is expected that both ends of the balance sheet, which are the debit and credit sides, should be balanced after every calculation has been made.

From the above, you can see that there are three main components of a startup’s balance sheet, and they include:

Assets

Assets here can be current or non-current assets, and they include everything that the startup owns within a given period. Assets can be tangible, which refers to those assets that can be seen and touched like properties.

A startup can also have intangible assets that you cannot feel or touch, like goodwill. Every business should identify its assets and why these assets were obtained.

Liabilities

While assets are those things a company owns, liabilities are those things a company owes. Liabilities can also be current or non-current liabilities. Startups need to know what they have as assets and what their liabilities include.

Shareholder’s equity

Shareholder’s equity refers to what is left when a company has paid off its liabilities. It is the remainder of assets after liabilities have been settled.

A well-drafted balance sheet should have these three concepts captured accurately in it.

When A Balance Sheet Is Not Balanced

The whole essence of a balance sheet is that the debit and credit sides should be balanced at the end of every calculation. However, there are instances where after all the entries, the balance sheet won’t be balanced.

You may notice an imbalance after every entry has been inputted, and you are wondering what is the cause.

Some of the factors that can be responsible for a balance sheet not being balanced include:

  • Incorrect or incomplete data
  • Wrongly entered details
  • Mistakes in exchange rates
  • Mistakes in inventory
  • Wrong calculations

After imputing the details, review the sheet again.

Building Your First Balance Sheet as a Startup

As a business owner, you don’t have to wait until you own a big business before building your balance sheet. Immediately after your startup launches, you should start putting steps in place to draw up a balance sheet.

Your first balance sheet may not be as perfect as subsequent ones. It is possible that, in the end, the balance sheet may not be balanced. Instead of getting worried, you can review it to check if any of the factors listed above are responsible for why it isn’t balanced.

To build a perfect first balance sheet as a startup, here are some vital steps to follow:

Set a report date and range

A balance sheet is not an indefinite document. Like every other accounting document, it is expected to cover a specific range. So, your first step to building a balance sheet for your startup is to set a report date and range.

Conventionally, a balance sheet is to be drawn up every year. However, some businesses have chosen to make theirs after every quarter or the first half of the year. Regardless of which of these options you are going for, setting a report date and range is necessary.

A good example of this is to have a balance sheet from 1st January 2021 to 30th June 2021.

Identify your assets and liabilities

After you have set a report date and range, the next step is to identify your assets and liabilities. It is impossible to build a balance sheet when you don’t have a comprehensive idea of what you own and owe.

Determine your shareholder’s equity

As earlier pointed out, your shareholder’s equity is what is left after you just have subtracted what you owe from what you own. If you can successfully identify your assets and liabilities, determining your shareholder’s equity will become easy.
Worthy of note is assets and liabilities identified, and shareholder’s equity determined must be within the range fixed when starting this process.

Carefully enter the details

All the steps that have been discussed above are geared towards ensuring you have the correct statistics. With all these statistics at your disposal, the next step is to enter the details into the sheet. In doing this, you have to ensure they are correctly entered.

Pay attention to all the data to be sure they are complete and reflect the current state of the startup. Avoid mistakes in exchange rates and inventories.

Conclusion

The process of building your first balance sheet as a startup is not as complicated as you might have thought it to be. Provided you understand a balance sheet, the purpose it serves and can follow through on the steps provided above, you can create one in no time.

However, where it appears that after several trials, you’re not getting the right results, you can seek the guidance of a financial expert to guide you through the process. You can also surf the internet for more information from professionals on building a balance sheet.

References
CFI: What is a Financial System?
HBS: HOW TO PREPARE A BALANCE SHEET: 5 STEPS FOR BEGINNERS
Wallstreet Mojo: Difference Between Current and Non-Current Assets
Dummies: Current and Noncurrent Liabilities on the Balance Sheet
Chron: How to Review an Unbalanced Balance Sheet

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How To Offset Cost Increases Without Driving Customers Away

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StrategyDriven Managing Your Finances Article |Costs|How To Offset Cost Increases Without Driving Customers AwayThe cost of doing business is increasing. It’s mainly due to the pandemic, stretching supply chains and bringing manufacturing and sourcing closer to home. But, it’s also because governments are clamping down harder on cheap foreign labor and polluting but cheap materials. The green agenda that governments are touting is going to impact the cost of making products and that in turn will affect your price. Rather than driving customers away from your brand, you could do any of the following to offset the rise in the cost of doing business.

Work with local brands

One of the reasons why so many companies have chosen to take their manufacturing abroad is because in the West, it is seen as expensive to work with such brands. However, you may not have a choice anymore as customers are more aware of the business world. They do not want to buy products that have been made by sweatshops, made using techniques that harm the local environment etc. So, now is the time to begin sourcing your raw materials, manufacturing needs and storage demands at home. Work with local businesses and negotiate favorable terms that will benefit both parties. Long-term contracts will be more mutual and less in favor of one party or the other and thus lower costs for a more predictable length of time.

Productivity gains

Perhaps the biggest cost of doing business is your employees. Paying the salaries of employees is by far the largest expenditure any business faces. To offset some of your additional costs regarding increases in pay, promotions and bonuses, increasing productivity could make your employees more affordable. To improve long-term productivity, invest in the internet of things, so all platforms, products and services are connected to each other. Digital productivity is also improving, as just in the US alone productivity rose by 10.6%. All the while employees are working from home. Making your software remote-work-friendly is, therefore, a must.

Targeted increases

Rather than offset the price completely, you could choose to optimize your profit by targeted increases in products. For your most popular products, you should increase the price right now, before the additional increase in costs hits what you need to create that product. For example, if you have a popular dining table made out of glass and metal, increase the price and fix it in place for the foreseeable future. This gives your customers time to adjust to the price rather than suddenly piling it on as other brands inevitably increase their prices too. Supply chains are being stretched and changes to them are increasing costs across the board. A targeted increase of your products that are expensive and are popular, prevents it from looking as if you are taking advantage of the market squeeze.

The cost of doing business is increasing because of the pandemic’s impact on supply chains. The shift in a more ethically aware customer culture is also a powerful new force to be reckoned with. Do these things to offset your costs without driving customers away.

How Your Personal Credit Score Could Affect Your Business

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StrategyDriven Managing Your Finances Article |Personal Finances |How Your Personal Credit Score Could Affect Your BusinessWhile your business and you can be two different entities, your personal credit score can affect your ability to do business in a wide variety of ways. But there is one area where it will affect you the most, and that’s when trying to get financing. Most institutional lenders will look at your personal credit score first if you haven’t had the time to build your business’s credit, which could make getting capital early on very difficult.

Thankfully, there are things that you can do to circumvent these obstacles and still have a chance of getting financing for your business. In this article, we’re going to show you the exact effects of bad personal credit on a business, what you can do about it, and how you can build your personal credit as fast as possible.

Why is My Personal Credit Score So Important?

A lot of business owners assume that their personal credit score will have no effect on their business. While your business credit score and personal credit score will be calculated differently, your personal credit score still says a lot about you. Ultimately, how you treat your personal credit will be used as an indicator of how well you manage your money in general to financial institutions. After all, if you can’t manage finances in your own life, how can you expect them to believe you’ll be able to manage them in a business?

In addition, there’s really nothing else institutional lenders can go by when assessing your creditworthiness. The only way they can tell is by looking at your credit score, which is pretty much like a financial report card. It also gives them a glimpse into your character, hence why some employers will ask for access to your credit report before they hire you. Your credit report is just another factor in the balance they will use to evaluate not only your ability to repay but what kind of person you are.

Your Credit Score Doesn’t Hold the Same Weight in Every Situation

However, you should know that your personal credit score will not be as important with all lenders. For instance, angel investors or venture capitalists may not place much importance on your credit score. They may look at things like revenue, margin, viability, and even your personality and knowledge of the business first.

On the other hand, if you were thinking of getting an SBA loan, your credit score will have to be at least 680 to even apply, and other factors will be used afterward. The same goes for term loans, or what people usually think about when talking about business loans. Credit score requirements will usually be around the 680 mark as well, even though they might vary from institution to institution.

If you have steady cash flow but didn’t have time to build your credit history yet, short-term loans might be a good option for getting fast cash approval when a business requires funds in urgency. Short-term lenders will usually put more importance on business revenue over your credit score and might be more lenient. However, note that the interest on these loans is usually much higher and that you’ll have to deal with shorter repayment periods as well.

Invoice factoring is another way to get advance money for urgent expenditures, but not really for long-term financing. Invoice factoring allows you to get an advance on an invoice due in exchange for a fee. In this case, the invoice will be used as collateral for the loan, so your business won’t be as closely scrutinized as with other options.

What Can I do to Repair my Credit?

There are plenty of things everybody can do to correct their report history. The first thing is to take account of your current financial activity and commit to adopting more responsible payment habits. That could mean setting up automatic payments on your bank accounts and taking steps to fix accounts that might be delinquent.

You should also make sure that you get a copy of your credit report from all major credit reporting agencies. You are entitled to one free copy of your credit report per year from the three major credit bureaus: Experian, Equifax, and TransUnion. This will not only give you a clearer view of your accounts but help you to see if there are any errors there that could negatively affect your credit.

For instance, in some cases, an account that you paid off may not have been reported as such on your credit report. Or you may find that someone opened a credit account under your name without your permission. If that is the case, you could put a credit freeze on your account and stop any other inquiries to make sure no other demands get through. Once this is done, you can follow the dispute process and get these errors removed.

Adding new tradelines to your credit is also a great way to build or fix your credit. Tradelines is when you add any new credit account to your report. One of the easiest ways to do so is to apply for a secured credit card. A secured credit card will allow you to get approved by leaving a certain amount of money as collateral. The credit amount will usually be equivalent to the money deposited, but the issuer might decide to increase your limit if you have a good history or upgrade you to a regular credit card later on.

Fix your Credit By Buying Authorized Tradelines

Another thing you could do that a lot of people aren’t aware of is actually buying positive tradelines that will be added to your credit account without even applying for credit. Some services will allow you to pay in exchange for being put as an authorized user on someone else’s account. When you become an authorized user on someone account, the account’s activity will be reflected in your report, which will have a positive impact on your credit score. This is why it’s very important that you know what makes for a great tradeline and which one you should avoid. If you want to know how and where to buy tradelines, you can check this article to learn more.

Conclusion

Less than stellar personal credit can and probably will have an effect on your chances of getting financing early on as a business owner. However, with the tips we just provided, you should be able to fix your credit situation and gradually improve your creditworthiness with potential lenders.

What Are the Benefits of Electronic Payment Systems for Business?

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StrategyDriven Managing Your Finance Article |Electronic Payment Systems|What Are the Benefits of Electronic Payment Systems for Business?An eCommerce payment system is also known as an electronic payment system, which is a digital transaction or paying for goods using electronic medium and eliminating the requirements of cash and checks. An electronic payment system is a globally popular payment technique due to the continuous usage of internet-based activities like baking, shopping, etc.

Modes of Electronic Payment

There are several online payment methods, such as smart cards, electronic wallet bank transfers, credit cards, bitcoin wallets, etc. In contrast, e-payment is classified into two categories, i.e., credit payment system, and cash payment system.

There are several online payment methods offered by companies like cardknox, such as smart cards, electronic wallet bank transfers, credit cards, bitcoin wallets, etc. In contrast, e-payment is classified into two categories, i.e., credit payment system, and cash payment system.

Credit Payment System

  • Credit cards; according to branding services UK, the credit card is the most primary form of e-payment system used by billions of people; in this mode, financial institutes provide a card to the account holder for making payments online through electronic devices.
  • E-wallets are also one of the leading techniques of online transactions in which a prepaid account holds user financial data used to make payment.
  • Smart card; smartcard is an advanced technology of transaction known as integrated circuit card or chip card (ICC or CC), which have a microprocessor to store money deducted when online transactions happen using that card.

Cash Payment System

  • Direct debit is a mode in which the account holder allows the bank to pay the amount from his bank account electronically.
  • E-check; e-check is one of the most valuable digital transactions of money from an account for paying for goods eliminating paper checks.
  • E-cash; in this method, a specific amount is saved on the customer’s device for accessible online transactions.
  • Stored-value card; stored cards are used by many well-known companies and businesses known as gift cards, in which a card with a certain amount is used for the transaction.

Benefits of Electronic Payment System for Business

In the globalized world where technology is constantly evolving and developing, around 3.8 billion consumers use the internet actively has changed business dynamics.

According to branding services in the UK, the continuous advancement of technology has changed the traditional payment system into an electronic payment system that can grow business efficiently. With the revolution of the electronic payment system as they are easy and straightforward for making payments. Moreover, they have eliminated the requirements of going to banks for transactions and other activities. Here are few benefits of an electronic payment system for business.

1. Instant Payments

Life has been chaotic where everyone struggles with work, relationships, finance, health, and many other things. The traditional method is a hectic and stressful process as they are often a slow and time-taken process. The electronic payment system eliminates chaos as they are faster and straightforward, like credit cards, e-cash, etc.

Electronic payments can be made through an electronic payment app from anywhere by deducting the need to go to banks by saving time and energy.

2. Higher Payment Security

With the expansion of businesses into the online world, one of the most significant concerns of any firm is security. Payment security is the prime need of a company to protect client’s data and information from frauds and other issues.
The electronic payment system is leading globally because of several reasons why security is one of the main reasons. It provides a higher level of payment security for clients by offering multiple encryptions, SSL, tokenization, etc. Clients don’t have to swipe cards again and again as they can save card details using One Time Password.

According to surveys, some organizations don’t utilize e-commerce payment technology and are stuck at traditional payment methods; that’s why they are having security issues and lack the opportunities to serve a higher number of consumers.

3. Better Convenience

Providing convenience to an audience is essential for business from that customer decides whether to engage with a company. According to experts, convenience is a vital aspect of growing a business, and electronic payments provide higher security; more importantly, they offer better conveniences to clients to achieve a better user experience.

It allows clients to purchase excellent using card facilities and paying later. Moreover, it doesn’t annoy consumers by sending several reminders and messages for payments and automatically collects the specific money as per rules.

4. Saves Processing Costs

Processing cost is a term of cost accounting used in manufacturing units for assigning and collecting cost. It takes the total cost of the process and averages it over the branches of production. For instance, when you offer payment service to clients, you need a card processor; and that processor allows payment transaction in exchange, it will charge an expensive cost value.

But electronic payment does not charge expensive cost values; you have to pay a fixed subscription according to the agreements and rules to your service provider.

5. Low Risk Of Theft

In the modern era of technology, business dynamics are swiftly changing; according to statistics, money is the lifeline of a business. The capital is essential for the company and day-to-day life. However, using cash for accepting payments is quite risky and against safety. As the crime rate is gradually increasing, several chances of getting stolen and even depositing money in a bank account are pretty unsafe.

Using an electronic payment system reduces the risk of theft by providing safe and secure payment transactions. Moreover, it gives all transaction records by the end of the day.

6. Transparent

According to branding services in the UK, transparency is an essential factor for a business; consumers are more concerned about their privacy and are willing to protect it. A study found that over 50% of consumers would switch companies simply because of their data policies or data sharing practices, which fail to secure consumer data. They will lose the interest of their customers and lead them to find another company where they feel more secure sharing their personal information.
That’s why the electronic payment system provides transparency by offering you details of transactions for a better user experience.

7. Contactless

Due to the Covid-19 pandemic, people avoided human contact for safety; this increased the need for contactless payment transactions.

The electronic payment provides POS terminals and QR codes to avoid human contact; in this method, the payee holds a cellphone near the terminal, and the payment will automatically proceed.

8. Reduces Carbon Footprint

With eCommerce payments systems, the use of paperwork has been reduced, for instance, paper receipts. Modern payment technology offers digital equivalent to the clients by saving money on ink, paper, and printers.

9. Greater Revenue

Every business wants to achieve more significant revenue for business progress and development. According to the latest survey and reports, it has been proven that consumers spend more on buying products and services using e-payments and increases the rate of revenue for business progress.

10. Better User Experience

A business needs to attract customers by providing a better user experience. Electronic payment is the advanced technology that offers a better user experience in terms of a smooth transaction, removes obstacles from purchasing like long queues or a limited amount, no extra cost involved, and furthermore.

Conclusion

According to experts, cash transactions have been decreased due to electronic payment systems; that’s the potential reason that e-payment is considering as a leading facet of a successful payment infrastructure by offering several valuable advantages to clients to increase business progress.

What Are Your Options To Fund a Business?

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StrategyDriven Managing Your Finances Article | What Are Your Options To Fund a Business?If you are thinking about starting a new business, there are a lot of factors that you need to consider. One of the most important factors of how you are going to fund your business. Without capital for your business, it doesn’t matter what else you have for your products and services. You will not be able to pay for inventory, purchase supplies, or pay for marketing. Therefore, you need to take a closer look at the options you have available for raising capital. What are a few of the top options you have at your disposal?

You Can Start by Bootstrapping Your Company

A lot of people get their businesses off the ground through something called bootstrapping. This is the process of taking your savings and using it to get your business through the early stages. The biggest benefit of dipping into your own personal savings is that you will not have to worry about paying anyone back. On the other hand, you probably only have so much money in your savings account. What are you going to do when this money runs out? That is why you need to learn more about some of the other options that are available.

You Can Ask for Help from Family and Friends

If you are looking for a way to raise money for your business, you may also want to consider asking your family members and friends for help. In a lot of cases, they could be willing to offer you a loan without interest. Before you think about taking out loans that have interest attached to them, you should reach out to family members and friends to see if they have any options available. In order for you to run a successful business, you have to learn how to take vantage of your connections. The first connections you need to lean on are your family members and friends. They might even be willing to simply give you money in exchange for a souvenir or prop from your company, such as a coffee cup or a T-shirt.

You Can Look at Venture Capital Options

Another option you might want to consider if you are thinking about ways to raise capital for your company is through something called venture capital, such as Patrick Chung of Xfund. The idea behind venture capital is that you pitch your business and how it works to a board that has a lot of money to spend. Then, if they believe in the premise of your company, they will give you the money they are looking for in exchange for a small percentage of equity in your company. You ought also to have access to experienced business owners and leaders who can provide you with the guidance you need to take your business to meet heights. If you are looking for funding for your business in addition to experts who can help you, this could be an option that you would like to consider for your company as well.

You Can Give Crowdfunding a Try 

You may also want to try something cold Crowdfunding. Crowdfunding is the process of raising small amounts of money from a lot of people. For example, you may want to use a website that can help spread the word about your business. Then, by explaining what your company does, you may have people who are willing to offer you small donations. If you are willing to offer a small souvenir, such as a keychain, you may be able to collect donations for more people while still turning a profit on that small keychain. Consider using crowdfunding to help you raise money.

You Can Apply for a Business Loan

Finally, you can also go to the convention in route, which is applying for a loan from a small business company. Keep in mind that you are going to have to pay this loan back with interest. You also need to convince the lender that your business is going to be a success. If you do not have any other options, you may want to consider applying for a small business loan from a bank or credit union.

Raise Money for Your Business

These are a few of the many options you have available if you are trying to raise money for a business. You need to think carefully about where the money for your business is going to come from. If you do not have enough capital to market and develop your products and services, you will not be able to meet the needs of your customers. Fortunately, there are professionals who can help your business raise the money it needs. If you work with the pros, you can focus on the more exciting parts of your company.