Did you know? 82% of startups fail because of cash flow problems that result from poor financial management, such as lack of funding, poor budgeting, or awful product pricing. Financial management is crucial for business success. It's more than just balancing business accounts or bookkeeping, and you know that a lack of it often results in significant monetary losses and ultimately closing down the business.
But as an early-stage entrepreneur, you also know that there are thousands of unattractive routine decisions calling out for attention underneath every growth milestone and performance target. In this post, we'll list 5 financial must-dos for startups who want to move from oblivious to financially savvy.
Restore your financial literacy
Gathering the proper tools and learning resources to understand and manage your early-stage business's finances takes time, but you will save a lot of stress and money. Don't be afraid to ask for help when you don't understand something; after all, you're doing it for your business's sake.
Financial experts say that a very low number of CEOs actually index every number in their balance sheet every month, and even fewer actually make sense of the numbers on the page. The point is you don't have to go to a fancy college to be a complete expert on business finances, but you should develop a sense of how money works and how everything should be tracked and managed.
Hire a dedicated financial team
The chance is your finance team may consist of you alone as of reading this. However, the minute your business begins to scale - or receives that big cash investment – you will likely be setting up a financial team to help you out.
The moment you have the financial potential, it's worth hiring a couple of financial professionals or at least subscribing to reliable accounting tools like QuickBooks. This won't just ease your work and life, but it will also help you protect your cash flow and avoid compliance problems with local tax agencies.
Hiring a financial expert will help you better manage your business's income and expenditure, including budgeting and forecasting. Someone with extensive experience in business finance will assist you in setting the direction for the company's future growth and making sure your daily operations and processes contribute as much as possible to accomplishing those goals.
Routine tasks like tracking business spending and expense reports are time-demanding and often tedious. A CEO, however, should be more concerned with finding customers and growing your business.
Create a spend management system
The latest financial management tools have so many advantages. These tools simplify and automate the entire reimbursement and reconciliation process: no more paperwork or manual error. Your financial team will no longer need to juggle with paper receipts to get reimbursed or spend hours manually calculating each employee's expenses.
A spend management system creates limits for expense categories and team members, keeps track of payment in real-time, reduces paperwork, and authorises expenses as they happen.
Forget papers- go digital!
As a startup entrepreneur, you're likely already tech-savvy and familiar with the vast array of startup tools out there. And just because bookkeeping and finances aren't fun, that doesn't mean there are not an enjoyable range of tools to help you manage your early stage, like accounting software.
Finding one might have been a difficult proposition a few years back; however, the growth of cloud-based accounting software options provides early-stage businesses with many cost-effective, user-friendly choices.
Because more often than not, an increase in productivity translates into time savings, the benefits of using accounting software for your business are invaluable. With accounting software, you can streamline operations and use automation to your advantage. As invoices, quotes, and sheets will often be pre-filled, you will only have to enter minimum operations and using this will help you complete and deliver projects in a timely manner.
reliable accounting software will also help you undergo a predictive analysis. Even better if your financial team is using the software to predict funds movement and the increase and decrease in your accounts receivables. You can also simplify and streamline elements in your accounting process that can be prone to mistake or human error.
Research your funding needs
While some early business entrepreneurs bootstrap their ventures, others turn to outside funding to grow their businesses. There's a lot to plan if you want to go this route, including how much money you need, your credit history and score, the loan repayment terms, and when you need funding. There's also the trouble that not every kind of funding will work for your business.
Here's an overview of seven typical sources of financing for startups:
- Personal investment – being your own investor either with your own cash or with collateral on your assets.
- Love money – this source of finance usually comes from families, friends, parents or spouses. Banks and investors consider this as "patient capital", which is money that will be repaid later as your business scales.
- Venture capital – you should be aware that venture capitalists are looking for tech-driven startups and businesses with significant growth potential in the communication, technology, and biotechnology sector.
- Angel investors – these are often experts in their own field and a massive network of contacts.
- Business incubators – these investors generally focus on the high-tech sector by providing support for early-stage companies in different stages of development.
- Government grants and subsidies – government agencies can offer financial support to early-stage businesses with the guarantee that startups meet several criteria.
- Bank loans – different banks offer different financial advantages. Be smart and shop around to find the bank that meets your specific needs.
Your time and money are valuable, so you want to ensure they are spent efficiently. It would help if you took the same attitude with your business’s financial health. Dedicate your time, energy, and knowledge to maintaining your business's financial health.