Smart Financial Moves Every Entrepreneur Should Make in Their First Year

Starting a business is exciting, but it also comes with financial challenges. Many new businesses struggle to stay afloat, and financial missteps in the first year can be hard to recover from.

New entrepreneurs often focus on building their brand, attracting customers, and refining their products or services. While those things are important, financial decisions in the early stages can determine whether the business survives or fails. Understanding where to put your money, how to manage cash flow, and what expenses to prioritize can make all the difference.

In this article, we’ll go over smart financial moves that will help set you up for success.

Set Up a Budget That Works for You

Many businesses fail because they don’t keep track of their expenses properly.

Start by listing all your expected costs, including rent, marketing, equipment, payroll, and software. Then, estimate how much revenue you expect to generate in the first year. This will help you determine whether you need to adjust your spending or seek additional funding.

It’s also important to track unexpected expenses. Emergencies happen, and if you don’t plan for them, they can throw off your budget. The key is to stick to your budget and adjust as needed without making impulsive decisions.

Plan for Retirement Even as an Entrepreneur

When starting a business, retirement planning is often the last thing on an entrepreneur’s mind. But skipping this step can create financial stress later in life.

A Solo 401(k) or an IRA are good options for entrepreneurs. If you’re wondering whats the difference between a 401k and an IRA, then keep reading.

Entrepreneurs don’t have access to employer-sponsored 401(k) plans, but they can still save for retirement with options like a Solo 401(k) or an IRA. A Solo 401(k) allows self-employed individuals to contribute more, reducing taxable income.

An IRA is easier to set up and comes in two types: Traditional, where contributions are tax-deductible, and Roth, where withdrawals in retirement are tax-free. Entrepreneurs who want to maximize savings may prefer a Solo 401(k), while an IRA offers more flexibility. Choosing the right plan depends on income, tax strategy, and business structure, making early retirement planning essential for long-term financial security.

Even small contributions add up over time, and putting money into a retirement account ensures you’re not just thinking about your business’s future, but your own financial security as well.

Prepare for Taxes Before They Become a Problem

Many new entrepreneurs don’t think about taxes until it’s too late. Unlike traditional employees who have taxes deducted from their paychecks, business owners are responsible for setting aside their own tax payments. If you don’t plan ahead, you could end up owing a large sum at the end of the year.

A good rule of thumb is to set aside 25-30% of your income for taxes. This ensures that when it’s time to file, you won’t be scrambling for money. Paying quarterly estimated taxes can also help avoid penalties from the IRS.

Deductions can lower your tax burden, so keep track of business-related expenses like office supplies, travel, and marketing costs. If you’re unsure about what qualifies, consulting a tax professional can save you from costly mistakes. Tax planning might not be exciting, but ignoring it can lead to serious financial trouble.

Be Smart About Overhead Costs

Keeping expenses low in the first year is crucial. Some new business owners spend too much on unnecessary things, thinking it will help them grow faster. However, overspending can drain your cash flow and leave you struggling to cover basic expenses.

Look for cost-effective ways to run your business. Instead of renting an expensive office space, consider working from home or using a coworking space. If you need software or tools, explore free or affordable options before committing to costly subscriptions.

Hiring employees too soon can also increase overhead costs. If possible, consider outsourcing tasks like bookkeeping, marketing, or customer service until your business is more financially stable. The key is to spend wisely and only invest in things that directly contribute to your business growth.

Build an Emergency Fund for Unexpected Expenses

Many new businesses run into unexpected costs that can quickly become a problem. Without an emergency fund, one bad month or an unexpected bill can put you in financial trouble. This is why setting aside money for emergencies is one of the smartest financial moves you can make in your first year.

A good target is to save three to six months’ worth of business expenses. This gives you a cushion if sales slow down, a major client leaves, or an essential piece of equipment breaks. Even if you start small, putting away a percentage of your earnings each month can add up over time.

To keep this fund separate, open a business savings account and only use it for true emergencies. Avoid dipping into it unless absolutely necessary. If your business never faces an emergency, that’s great—but having a safety net will keep you from scrambling when something unexpected happens.

Use Debt Wisely and Avoid Unnecessary Loans

Taking on debt can be risky, but it can also help a business grow when used correctly. The key is to borrow strategically and only when necessary. Many entrepreneurs take on loans too soon, thinking they need large amounts of capital to succeed. In reality, smart budgeting and keeping costs low can reduce the need for borrowing.

If you do need funding, consider all options. Small business loans, grants, and investor funding can be better choices than maxing out credit cards. Look for financing with low interest rates and flexible repayment terms. Avoid taking out more than you need, as unnecessary debt can drain your profits and limit growth.

Invest in Business Insurance for Protection

Many new business owners overlook insurance because it feels like an unnecessary expense. But skipping it can lead to major financial losses if something goes wrong. A lawsuit, data breach, or unexpected accident can cost thousands—or even shut down your business entirely.

At a minimum, look into general liability insurance, which protects against common risks like property damage or customer injuries. If you offer professional services, professional liability insurance can help protect against claims of errors or negligence.

Cyber insurance is also important, especially if you collect customer data. Even small businesses can be targeted by cyberattacks, and recovering from one can be expensive. Investing in the right insurance policies keeps your business safe and prevents unexpected financial setbacks.

The first year of running a business is a critical time, and financial decisions can determine whether you succeed or struggle. By separating business and personal finances, creating a budget, preparing for taxes, and keeping expenses under control, you lay the groundwork for long-term success.

Learning about business finance is a step that too many entrepreneurs overlook. The more informed you are, the fewer costly mistakes you’ll make. Taking these financial steps now will help your business not only survive its first year but thrive for many years to come.