Entrepreneurial Finance 101: Navigating the Digital Banking Landscape

ecuring the funding to launch and maintain your business can be an overwhelming process. There are so many options, from self-funding to business lines of credit, and variables that make it hard to plan for the future.

If you’re confused by the world of entrepreneurial finance, this guide is for you. We’ll cover the basics of small business funding plus give tips to develop your entrepreneurial strategy for long-term success.

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What is entrepreneurial finance?

Entrepreneurial finance refers to the process of financing a new business or startup. Unlike corporate finance, entrepreneurial finance is mainly focused on maximizing profits to get a business off the ground rather than planning for long-term investments. [https://builtin.com/finance/entrepreneurial-finance] For many business owners, that means taking on debt and responsibly managing it while setting yourself up for future revenue growth.

Unfortunately, there is no perfect entrepreneurial finance guide that will answer all of your questions. It’s complicated—the best financial strategy looks different for every business. However, with plenty of careful research and planning, you can develop a strategy to launch and successfully grow your business without drowning in debt.

Developing an entrepreneurial finance strategy

Only around 40% of new businesses are self-funded. Other startups rely on external funding, including crowdfunding, grants, investors, and small business loans. Regardless of where you get your funding, there are a few key elements that can make or break your entrepreneurial finance strategy:

• Long-term planning: Even if you’re just focused on launching your business now, your financial strategy should account for detailed long-term plans. [https://fastercapital.com/content/Financial-tips-for-startup-success.html]
• Debt management: Many business owners have to go into debt to start or grow their business. Your debt won’t hurt your finance strategy as long as it’s carefully managed and paid off in time. [https://fastercapital.com/content/Financial-tips-for-startup-success.html]
• Understanding operating costs: Know the difference between your fixed and variable operating costs, including factors like rent, loan payments, labor, and materials. You may need to update your financial strategy as those costs change. [https://fastercapital.com/content/Financial-tips-for-startup-success.html]
• Separate business and personal finances: Even if you own a sole proprietorship, it’s important to keep your business and personal costs completely separate. This will help you manage your business’s cash flow and prepare for future growth.  [https://fastercapital.com/content/Financial-tips-for-startup-success.html]

Shaping your entrepreneurial finance strategy is no small job. It takes time, dedication, and expertise. As you plan your business’s finances, you might want to invest in a financial advisor who will help you create a detailed budget. You can also make use of financial planning tools provided by your bank or fintech platform.  

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How digital banking plays into your strategy

Part of launching your entrepreneurial finance strategy is finding the right banking platform. You’ll need a business checking account to manage your business’s finances. You might also want to consider other forms of funding from your banking platform, such as credit cards and small business loans.

These days, traditional banks aren’t your only option. As many as 35% of small-to-midsize businesses in the U.S. choose fintech platforms for their business banking or funding. That’s because a fintech, or digital banking platform, provides tools and resources not offered by traditional banks. Fintech platforms aim to make it easier for businesses at all stages of development to acquire funding. [https://invoice.2go.com/learn/banking/fintech-vs-banks/#lsf1m365mr-]

Here are a few examples of how your digital banking platform can help shape your entrepreneurial finances:

• Accessible working capital: Many fintech platforms offer a wide range of funding options with more flexible terms than those offered by traditional banks.
• Digital resources: Some digital banking platforms also offer financial resources, including learning materials, financial advice, and digital tools to help you track and manage your spending.
• Intuitive platforms: Digital banking platforms are generally intuitive and easy to use. You can access your loan payments, checking account, and financial planning tools all from the same interface.

Digital banking vs. traditional banking

While some business owners find all the resources they need with a traditional bank, the emergence of digital banking platforms has provided more flexible options for new businesses to manage their finances. [https://www.mckinsey.com/industries/financial-services/our-insights/fintechs-a-new-paradigm-of-growth]

So, what’s the difference between these two options? A traditional bank offers brick-and-mortar locations and standard banking services, including loans, credit accounts, and checking accounts. Digital banking platforms, on the other hand, offer online-only services. They frequently offer lower fees and interest rates than traditional banks, but they don’t have physical branches for cash withdrawals or in-person consultations. [https://www.forbes.com/advisor/banking/online-banks-vs-traditional-banks/]

There are pros and cons to both options. However, digital banking platforms are generally more affordable and offer flexible funding options—that’s why they’re gaining popularity among new business owners. [https://www.mckinsey.com/industries/financial-services/our-insights/fintechs-a-new-paradigm-of-growth]

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Tips to minimize risk

Starting a business is risky—there’s just no getting around it. However, there are steps you can take to minimize risk in your entrepreneurial finance strategy. Along with careful planning and debt management, you’ll want to keep these tips in mind.

Don’t overestimate your net income

One of the most common mistakes new business owners make is overestimating their net income compared to their capital requirements. [https://www.businessnewsdaily.com/7398-startup-mistakes-to-avoid.html] Put simply: Starting a business is almost always more expensive than you think it will be.

When evaluating your business finances, it’s best to be conservative. Create realistic growth models to plan for your cash flow throughout the first years of your business. Market research, or learning about other businesses in your industry, can help shape your expectations. [https://www.salesforce.com/resources/articles/how-to-conduct-market-research-small-business/] You should always plan for unexpected costs and avoid taking on new debt before you’re sure your revenue growth will account for it.

Diversify your business assets

Having multiple assets is a crucial part of any entrepreneur’s financial strategy. [https://www.forbes.com/sites/melissahouston/2023/09/04/5-steps-to-financial-freedom-for-smart-business-owners/?sh=4e38400f7032] If one aspect of your business fails, it’s important to have another income source to fall back on.

Here’s an example: If you own a brick-and-mortar business, you can diversify your income stream by investing in e-commerce. Online sales will continue bringing revenue to your business even if you lose your storefront. Similarly, if you own a sole proprietorship that offers digital services, such as content editing, you can diversify your assets by learning and marketing another service, such as content writing or proofreading.

In other words, don’t put all of your eggs in one basket. Investing in alternative sources of income can keep you from falling behind when unexpected roadblocks occur.

Find the right banking platform

Whether you’re looking for a source of funding or just a simplified business checking account, make sure you choose the banking platform that works best for your business. Some new business owners choose to work with traditional banks. Others partner with digital banking platforms that offer funding, simplified accounts, and other online resources.

The digital banking landscape might seem complicated, but it’s much easier to navigate with a clear, helpful platform that helps you minimize your risks.  

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Start building your financial strategy today

Launching a new business is no small task. Whether you’re self-funding, taking out a business loan, or looking for alternative sources of funding, it’s important to be strategic about your finances. A detailed entrepreneurial finance strategy will help you get your business off the ground and manage your debts so you can start building toward successful, long-term growth.

The right banking platform will make all the difference. If you’re looking for flexibility, accessible funding, and digital resources to guide your entrepreneurial journey, Novo's digital banking solution can help.

Novo is a fintech, not a bank. Novo acts as a service provider to Middlesex Federal Savings, F.A., and the deposit and banking products obtained through the Novo platform are provided by Middlesex Federal Savings, F.A.

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