So you’ve finally decided to turn your dreams into reality and start a new business. However, it is one thing to have a great business idea and another thing to have enough capital to keep it afloat and grow your business.
Even if your business is successful right now, staying on track financially can be one of the most challenging aspects of creating and managing a startup. Most founders and business owners don’t have a finance or accounting background. As a result, financial management for startups can seem like a complex and daunting responsibility, resulting in avoidable mistakes that may damage your business.
Despite their great ideas, many startups don’t make it due to mismanaging of cash or failing to raise new capitals. Here we explore several money management tips for startups aiming to become a thriving and profitable business.
The cash flow of a business is its lifeline. Knowing where money is coming in and going out is the most essential financial element you will need to understand when creating a financial roadmap for your business. Among all the other tasks startup founders need to complete, maintaining accurate and up-to-date accounting records is amongst the most important. Perform good bookkeeping practices regularly and stay on top of all transactions. Startups should also keep separate business and personal accounts, and do not intermingle business and personal expenses.
Develop a budget
A startup budget serves as a road map for building any type of business. The only way to keep your finances in tip-top shape is to put in the effort towards managing them effectively. Setting a realistic budget will keep you steady, help you to stay on track and keep your eyes on the ultimate goal. Sometimes startup owners may need to readjust their budget more than once, and that’s OK. Be open to change, but remember to stick to the revamped budget.
Any growing business will have a variety of expenses. To keep on top of your budget, consider your spending and evaluate what is essential and what is not. Differentiate business expenses that are essential from those that are optional. Unessential or optional costs for example may be costly business travel, or investing in a swanky work space. In the early days of a startup, prioritize needs over wants. The business comes first and keeping expenses low means that there are funds available to use when true investment opportunities arise.
Have a contingency fund
Young businesses can be cyclical in nature, and setting aside profits or regularly depositing cash into an emergency fund when tidings are good, will serve you well in riding out the first tumultuous years of a startup’s financial growth. Reserve funds can help you stabilize off-peak operations, as well as any unforeseen financial drains, such as faulty stock or raw materials price increases. There is no hard and fast rule on the size of the fund, but savings that will cover expenses for six months can help to make your business emergency-proof in times of trouble.
It can be very stressful facing financial problems as a business, but there is professional help and advice available to help you tackle them before it gets too much to handle. If you don’t have the time or experience to accurately manage your own finances, consider paying a professional to manage your financial records, which allows you to focus on growing your business and avoid costly accounting mistakes. Consultants, financial advisors, your accountant or bookkeeper can help put together your financial statements, evaluate your expenses and forecast your profits to save you a lot of time and money in the long run.
Keep up-to-date accounting records
If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments or not realizing when you have to pay your suppliers. Many businesses in the early days try to make do with using Excel to calculate their finances but this is not the best long-term solution. Using a good record keeping system such as accounting software will not only save you time but because of its automation capabilities, is able to provide up to date information, help you to track expenses, debts and creditors, apply for additional funding and save accountancy costs. Many accounting software apps also sync to other business applications, making running your business easier.
Research your funding needs
One of the most common reasons a startup doesn’t get off the ground is a simple lack of capital. It is essential that you choose the right type of finance for your business – each type of finance is designed to meet different needs. There are a number of ways you can go about funding a startup, from traditional loans from banks, bootstrapping, to crowdfunding, using one of the many digital funding platforms. You will need to consider how much money you need, the repayment terms, when you need the funds and what kind of funding will work for your business in order to figure out which funding route to choose.
Effective financial management is vital for business survival and growth. Utilizing these tips will help you to turn your business dreams into goals and put your finances in order. Good financial management will definitely improve the overall quality of your business and see its continual financial growth and success.