Embarking on an entrepreneurial journey requires a solid financial base, so we’ve gathered insights from Founders, CEOs, and other business experts to illuminate the path. From implementing “Profit First” financial management to knowing your key business metrics, discover the twelve pivotal steps these seasoned entrepreneurs recommend for establishing a strong financial foundation.
- Implement “Profit First” Financial Management
- Learn Skills and Save Early
- Adopt Conservative Financial Planning
- Calculate a Realistic Hourly Rate
- Develop a Detailed, Flexible Budget
- Build a Strong Personal Brand
- Bootstrap for Financial Control
- Start with What You Have
- Seek Guidance from Successful Entrepreneurs
- Embrace a Lean-Startup Model
- Secure Funding with a Realistic Budget
- Know Your Key Business Metrics
Implement “Profit First” Financial Management
The saying “It takes money to make money” is flawed; rather, understanding how to manage the money you make is crucial. I learned this the hard way after not paying myself a penny for the first three years of being in business.
The game-changer came after I implemented the methodology and system from the book, “Profit First” by Mike Michalowicz. After following this blueprint, my profit increased by 1,385%. That is not a typo! I learned how to earn profit from every sale, pay myself more, and save money towards taxes, thus ensuring that my business will always be financially healthy.
“Profit First” teaches its readers how to set up an easy system that gives business owners a complete picture of their cash flow so they can reduce costs and pay bills while making a profit.
Immediately after reading the book (and every quarter after), you will begin making a profit and be able to pay yourself more!
My recommendation to aspiring and existing entrepreneurs is to adopt the “Profit First” blueprint: focus on profitability and implement this system to manage your finances effectively. With careful planning and smart money management, you can build a strong financial foundation for your entrepreneurial journey without needing to reinvest in your business at the expense of your salary.
Christine Spiak
Financial Coach, Compass Financial Wellness
Learn Skills and Save Early
Building a strong financial foundation for my entrepreneurial journey began when I was freelancing. Learning high-income skills such as SEO and digital marketing played a crucial role in setting up my financial foundation. These skills are especially powerful in the digital age, where online visibility can make or break a business. I dedicated time to learning SEO tactics and digital marketing strategies through free online resources and affordable courses.
When I was earning a decent amount of income, another key step that helped me was being diligent about saving. I made it a habit to set aside at least 20% of every payment I received. This might seem like a lot, but it’s manageable with a bit of budgeting and prioritizing. I treated my savings like a non-negotiable bill that had to be paid each month.
When I started my blogging business, this savings buffer gave me the financial freedom to invest in better website design and marketing without the stress of living paycheck to paycheck. By combining saving, learning high-income skills, and practicing diligent money management, I was able to create a solid financial base that supported my entrepreneurial activities. This approach not only prepared me for the initial costs of starting a business but also for scaling it sustainably.
My recommendation to aspiring entrepreneurs is to invest in yourself and your skills and start building your savings early and consistently. This money not only covers unexpected expenses but also provides the capital you need to invest in and grow your business. Moreover, having a financial cushion allows you to make decisions based on what’s best for your business, not just immediate financial pressures.
Georgi Todorov
Founder, Create & Grow
Adopt Conservative Financial Planning
Establishing a strong financial foundation is not just about having deep pockets; it’s about having a clear understanding of your finances, a strategic plan for spending and earning, and a contingency plan for financial uncertainties.
One specific step that has proven beneficial for me, and could be helpful for aspiring entrepreneurs, is always adopting a conservative approach to financial planning, coupled with an aggressive approach to value creation and revenue generation. When starting, it’s crucial to strictly monitor and control expenses, minimizing them as much as possible, while pouring resources and energy into developing a product or service that gives real value to customers and yields significant returns.
Moreover, diversifying the revenue stream has also been a commendable practice. Instead of relying on a single source of income, consider exploring other complementary sources. Diversification not only increases earning potential but also minimally impacts your business during economic downturns or seasonal ebbs.
Casey Meraz
Owner & Digital Marketing Expert, Casey Meraz
Calculate a Realistic Hourly Rate
I calculated what I needed to make. Most service providers I know (even though it isn’t an exact science) use a simple formula of hourly rate x estimated hours = amount they charge for a particular project.
Though there are issues with this as well. For more seasoned folks, it typically doesn’t take them as long as someone more green. So if the hourly rate is the same, the less experienced person might get paid more. This definitely requires adjustments over time to account for acquired skills, expertise, and speed! And all the more reason to regularly update your hourly rate so that it matches your present experience level.
For entrepreneurs, simply starting with the typical salary you’d make doing similar work at a full-time job doesn’t cover it. This is because you have to factor in employer AND employee taxes, operating expenses, private health insurance, fully funding your own retirement, etc. And don’t forget all of the non-revenue-generating tasks like conducting intake calls, the time it takes to scope each project, any marketing activities (like writing this blog post!), bookkeeping, etc.
As a rough rule of thumb, I can expect to see about 50% of whatever I bring in for the business as owner’s pay. The other 50% goes to taxes, operating expenses, and to pay my team.
So if I (as the business owner) want to make $50,000 to live my life, then my business needs to bring in (aka my gross revenue needs to be) at least $100,000.
What you want to make each year x 2 = How much your business needs to make
Divide THAT number (how much your business needs to make) by the annual total number of hours you want to work, and that’s *loosely* what your hourly rate should be.
Some reminders to consider when thinking about when calculating how many hours you want to work in a year:
Remember that the 40-hour work week is a fallacy and nobody is productive for a full 8 hours a day. As the business owner, you’ll need to consider time for other non-revenue-generating work.
Maggie Gentry
Thought Partner & Digital Marketer, MaggieGentry
Develop a Detailed, Flexible Budget
A key step in establishing a strong financial foundation for any entrepreneurial venture is maintaining a rigorous approach to budgeting and financial forecasting. One specific practice I recommend is the development of a detailed, flexible budget that accounts for both fixed and variable costs, as well as unforeseen expenses.
This allows for better financial control and preparedness, enabling entrepreneurs to make informed decisions and adjust their strategies in response to financial performance and market changes. Regularly revisiting and updating the budget as your business evolves is crucial for staying on track and ensuring financial stability, setting the stage for sustained success.
There are several apps that can help you visualize all of this, too. I like to look at visuals, so I find expense-tracking apps great. If Excel is your thing, then there are endless templates out there, too, which can help you track and visualize your financial data.
Ben Poulton
Founder, Intellar SEO Consultancy
Build a Strong Personal Brand
There’s just one thing you need to do: Build your personal brand.
Faceless corporate era is over.
It’s 2024.
Build your personal brand, or your entrepreneurial journey will lead to nowhere.
Here’s a step-by-step breakdown:
- Join LinkedIn. And please, it’s not just a platform for sharing achievements and reposting anymore. You will build your personal brand here now.
- Start by a serious self-reflective session and brainstorm who you want to be. What do you offer and give to humanity? How do you want to be perceived?
- When you feel clear on your vision, bring it to life! Start by creating or optimizing your profile.
- Start connecting with content creators (as they are most active) and your target audience.
- Engage daily, show up daily. At least 30 minutes per day.
- Create your Content Marketing Strategy.
- Start posting.
- Engage, post, nurture, and enjoy becoming a thought leader!
There are many other hacks you can do in order to establish a strong financial foundation. But one that doesn’t cost you anything (except time) and brings you financial abundance (as in leads) is having a strong Personal Brand.
Lelde Legzdina
Brand and Content Marketing Manager, Nuuro
Bootstrap for Financial Control
One specific step that significantly bolstered the financial foundation of my entrepreneurial journey was the strategic use of bootstrapping in the initial stages of the business. This involved carefully managing finances by minimizing expenses and reinvesting profits back into the business instead of seeking external funding right away.
For example, in the early days of CodeDesign, we focused on securing small, manageable projects that generated immediate revenue without the need for substantial upfront investment. This approach not only kept us lean and agile but also helped us maintain control over our business decisions without the pressure from external investors.
Bootstrapping also compelled us to prioritize projects with a quick turnaround and high return on investment, which in turn accelerated our learning and adaptation to market needs. This hands-on financial management practice ensured that when we were ready to scale, we had a solid, debt-free foundation and a clear understanding of our operational efficiency. I recommend this approach to aspiring entrepreneurs as it not only establishes strong financial discipline early on but also allows greater flexibility and autonomy in steering the business according to one’s vision.
Bruno Gavino
Founder, CEO, CodeDesign
Start with What You Have
When you’re just starting out, every dollar in your pocket matters. That’s why I didn’t buy a single thing when I started my writing business. Instead, I used what I already had: my husband’s seven-year-old laptop, a kitchen table, random pens I found in a drawer, scrap paper, and a free Gmail address.
My first priority wasn’t to “build a business,” but rather to “get a client.” And once I had a client, I could justify investing something in my business because I knew I’d get a return on investment. That client led to more clients, which meant more revenue. I started investing money in my business as I grew, but only when I had the means to pay for the purchases and not go into debt.
It worked—I’m over eight years into business and still going strong. I realize this advice doesn’t work for every type of business, but I believe in only buying what you really need to start. Your finances will thank you later.
Alli Hill
Founder and Director, Fleurish Freelance
Seek Guidance from Successful Entrepreneurs
Whether you’re just starting out in your job or have prior relevant entrepreneurial experience, picking up tips and tricks from others can greatly enhance your business acumen and increase the profitability of your enterprise.
Try contacting any successful business people you know and getting their guidance and inspiration for a career in business. To learn more, you should think about reading a book written by an entrepreneur you respect or checking out a podcast about a related topic.
Steve Neher
CEO, Mail KIng USA
Embrace a Lean-Startup Model
I’ve learned that maintaining a lean-startup model is incredibly effective in establishing a strong financial foundation. This approach involves minimizing overhead costs, focusing on essential expenditures, and scaling gradually as revenue increases. It’s crucial to avoid the temptation to overspend early on, which can deplete resources before the business achieves sustainable profitability.
I recommend anyone considering this route to be meticulous in financial planning and budget management. Starting with a detailed budget that outlines all potential costs—including hidden expenses—and sticking to it as closely as possible is essential.
It’s also wise to set aside a contingency fund to cover unexpected costs or economic downturns. By being financially disciplined and prepared, aspiring entrepreneurs can significantly increase their chances of long-term success.
Andrew Lee Jenkins
Owner, Catalyst RVA Marketing Agency
Secure Funding with a Realistic Budget
Before diving in, I focused on two key areas: creating a realistic budget and securing funding. The budget helped me understand my personal finances and how much I could realistically invest.
Then, I explored various funding options, from bootstrapping with personal savings to pitching to potential investors. By taking a proactive approach, I established a strong financial foundation that allowed me to launch my business with confidence and navigate the initial challenges.
Perry Zheng
Founder and CEO, Pallas
Know Your Key Business Metrics
One of the most important things you need to do is know your key numbers cold. I run a software company, so there are a few metrics that I can reel off even in my sleep. They include CAC, LTV, logo churn, revenue churn, NPS, and ARPU.
If you’re not in SaaS, some of these numbers may not mean much to you. The point is that you need to know all of your top-of-funnel metrics, such as the lifetime value of your customers, the cost to acquire your customers, the average order value, etc.
These numbers will allow you to make decisions such as which acquisition channels you can use, how long it’ll take you to break even, and even the enterprise value of your company.
With these metrics, you can, with a high degree of certainty, understand exactly how much you need to spend/invest to make $x amount. It’s a powerful thing because you’re just plugging numbers into a formula and taking a lot of the guesswork out of doing business.
You’ll also be better equipped for financing, investments, and even if you’re looking to sell your company.
Learn your key acquisition and customer value metrics.
Daniel Ndukwu
CMO and Co-Founder, DoxFlowy
