Best Practices For New Entrepreneurs

Aleesha Webb is the founder of LadyBanker and serves on the board of directors at Pioneer Bank.

Starting a business is exciting, but without strong financial management, even the best ideas can fail. Many new entrepreneurs focus heavily on their products, services and marketing while neglecting the financial health of their company. However, understanding and implementing solid financial best practices early on can mean the difference between struggling to survive and thriving in the long run.

Whether you are launching a startup, running a small business or turning a side hustle into a full-time venture, here are key financial best practices every entrepreneur should follow to build a stable foundation for their company.

1. Separate personal and business finances.

One of the first mistakes many new entrepreneurs make is mixing personal and business finances. When you don’t separate them, it becomes harder to track expenses, measure profitability and manage taxes effectively.

Here’s how to do it right:

• Open a business bank account: Keep all income and expenses separate from your personal funds.

• Get a business credit card: This helps build credit history for your company and keeps transactions organized.

• Use accounting software: QuickBooks, FreshBooks or Wave can help track business transactions in real time.

By keeping your finances separate, you will gain better visibility into your company’s financial health and simplify tax preparation.

2. Build a budget (and stick to it).

A budget is not just a tool for large corporations, it’s essential for small businesses, too. Without a budget, you risk overspending and running out of cash before generating enough revenue.

Here are some steps to create a business budget:

• Estimate monthly income: Start conservatively, considering sales forecasts and market trends.

• List fixed expenses: Rent, insurance, software subscriptions and utilities should be accounted for.

• Track variable costs: Marketing, travel and supplies fluctuate, so budget accordingly.

• Allocate for unexpected expenses: Always have a buffer (around 10%-20% of your budget is often recommended) for emergencies.

Make sure to regularly review your budget. You may need to make changes based on business performance and unexpected changes.

3. Manage cash flow effectively.

Often businesses fail because they run out of cash—not because they aren’t profitable. Cash flow management is the backbone of financial stability.

Here are some tips for managing cash flow:

• Get paid faster: Invoice promptly and set clear payment terms (e.g., net 15 or net 30). You may want to consider using invoicing software like FreshBooks or PayPal.

• Negotiate vendor terms: Delay outgoing payments where possible to keep cash on hand longer.

• Monitor expenses closely: Identify unnecessary costs and eliminate them to keep cash reserves strong.

• Maintain an emergency fund: Aim to keep three to six months of operating expenses in cash reserves.

By ensuring more cash is coming in than going out, you can better avoid the panic of financial shortfalls.

4. Price your products or services for profitability.

A common mistake among new entrepreneurs is underpricing their products or services in an effort to attract customers. While competitive pricing is important, your business must be profitable to survive.

Here’s how to set the right price:

• Know your costs: Calculate cost of goods sold (COGS), operating expenses and taxes before setting prices.

• Factor in value: Set your price based on the perceived value you provide, not just costs.

• Benchmark against competitors: Research industry standards, but don’t engage in price wars—focus on value.

• Test and adjust: Regularly analyze sales data and adjust pricing based on demand and profitability.

Your pricing strategy should reflect both your costs and the true value you provide to customers.

5. Keep business debt under control.

While some debt can be useful for growth, too much debt can cripple a business. Entrepreneurs often take out loans or credit without a clear repayment strategy, leading to financial strain.

Here are some smart debt management strategies:

• Only borrow what you need: Avoid taking on more debt than your revenue can support.

• Understand loan terms: Review interest rates, repayment terms and hidden fees carefully.

• Prioritize high-interest debt: Pay off the most expensive debts first.

• Consider alternative funding: Explore grants, crowdfunding or investor funding instead of relying solely on loans.

Good debt management provides financial flexibility without unnecessary stress.

6. Track key financial metrics regularly.

Successful entrepreneurs don’t guess at their financial health—they track it. Monitoring key metrics helps you make informed business decisions.

Here are some key metrics to monitor:

• Revenue and profit margins: Are you making enough to sustain operations and grow?

• Burn rate: How fast are you spending cash reserves?

• Customer acquisition cost (CAC): How much are you spending to acquire each new customer?

• Lifetime value (LTV) of a customer: How much revenue does each customer bring over time?

• Debt-to-income ratio: Are you managing debt responsibly?

Use financial dashboards and accounting software to track these regularly.

7. Plan for taxes in advance.

A major financial shock for new entrepreneurs is underestimating tax obligations. Waiting until tax season to plan can lead to cash flow problems and penalties.

Here’s how to stay tax-ready:

• Set aside tax money: It’s often a good idea to allocate 20%-30% of revenue for taxes.

• Understand deductions: Track business expenses like travel, home office and equipment to lower taxable income.

• Hire an accountant: A CPA can help maximize deductions and ensure compliance.

• Make quarterly payments: Avoid penalties by making estimated tax payments throughout the year.

A proactive tax strategy can help keep you ahead of liabilities and prevent surprises.

8. Invest in financial education.

Entrepreneurs who understand financial management have a higher chance of long-term success. Continually learning about finance empowers you to make better business decisions.

Here are some tips to keep learning:

• Read business finance books, such as Profit First by Mike Michalowicz.

• Listen to financial podcasts for entrepreneurs.

• Take an online course on business finance or accounting.

• Join a business mastermind or seek mentorship.

Financial knowledge is one of the best investments you can make.

Set your business up for long-term success by taking action today.

The earlier you take control of your finances, the stronger and more sustainable your business can become. Success starts with knowing your numbers.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?