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If finances can break up a marriage, what can they do to a startup? There seem to be a lot of expenses. And, where is all that money going to come from? As with any task, it is best to break down your financial tasks into a manageable checklist.
At the very beginning of a startup, the budget should be relatively simple. You don’t have hundreds of vendors and customers, a huge amount of employees, or an office space to maintain. That being said, it is still important to have a proper understanding of your company’s finances.
Here are a few financial considerations to get you started.
Make financial goals
Make financial goals with measurable milestones. Financial projections up to three years. Include all departments. Update monthly, or anytime there is a significant change in business. Utilize financial forecasting to get an accurate picture.
Manage cash flow
Make a budget
Establish a budget, and stick with it. No matter what. Determine your cash needs ahead of time, as much as possible. What will you need for each milestone? Add it to the budget.
Cash flow is simple at first, and can be managed by a financially savvy partner. Expenses and income are relatively low at this point, and uncomplicated. Make sure you understand what is going on . If you are not financially savvy, find a partner who is.
“A very low percentage of new business owners actually go over every number in their finances every month, and even fewer actually understand all the numbers on the page,” said Barry Moltz, financial advisor, author and public speaker on small business management.
Establish systems
Set up an accounts payable system, so that you have a plan for paying your bills on time. Enter all invoices and expenses. By determining a schedule for payment, you will ensure that your bills get paid on time.
You will also need a system for accounts receivable. After all, the goal is to make money someday. Determine how you will invoice and follow up on money owed. Create credit guidelines, and a collection policy and timeline. You may want to consider establishing an early payment customer incentive in order to increase early cash flow. Figure out how to handle delinquent payments, as well.
There are many inexpensive or free options for accounting software or apps to track and monitor all spending. Check out:
Reduce overhead
Now is the time to tighten your belt and spend as little as possible. Keep expenses low to dedicate as much capital as possible to growth.
Be prepared
Widening your knowledge with regards to all aspects of finances is the ideal way to get prepared as a new entrepreneur. You don’t want to experience any unwanted surprises along the way if you apply for a business credit card or require a loan to buy new equipment for your business. Understanding your credit score and financial history will give you a well-rounded overview of what you might be able to invest in in the future. If you’re wondering what is a good credit score, now is the time to do your research. Your credit score can dictate whether your loan applications are declined or approved, and it takes into account your debt levels and payment history. Even if you believe your credit history is excellent, it’s always a good idea to get it checked for free using a reputable online vendor.
Open an emergency savings account. Even though you expect the best for your business, you need to be prepared for the worst. In order to maximize your money, look into a Roth IRA or micro-investing for your emergency fund.
Budget your time
Time is money. Always keep this in mind when you are preparing your schedule and prioritizing your tasks.
Focus on customer acquisition
Customers are the key to making money, and ultimately, making your startup a success! Make sure you are focused on customer acquisition, just as much as product development.
Find out how to get customers without spending a lot. You need the most bang for your buck, in other words. Once you’ve established customer acquisition channels, you will be able to streamline your budget towards those channels. Look for cost effective opportunities to reach customers with a high return.
Pay yourself
If you’re stressed about your personal finances, your business may suffer. Make sure to budget enough to pay yourself, so that you can focus on building and growing your business, not stressing about personal bills. Don’t give yourself a fat paycheck quite yet! Figure out how much you need to live without stress, and go from there.
Don’t mix personal and business finances. Keep your startup as financially stable as possible. This protects you and your business.
Find a bank
It is important to establish solid banking relationships. Look for a bank that has experience with startups, that you can have a long-term relationship with. Shop around for rates and fees.
Having an established account with a reputable bank helps you look professional and trustworthy. A reputable bank also offers legal protection with personal liability protection.
Build a dream team
It’s okay to be picky about who you include in your team. Build your team carefully. Make sure you hire quality individuals for key roles, and outsource the rest.
Don’t forget about payroll! If you don’t have the budget for human resources, this is a great role to outsource. Read our article about outsourcing for startups. Check out Gusto to manage your payroll, if you are comfortable managing human resources on your own.
Be prepared for taxes
Don’t forget about taxes. Hire a tax professional ahead of time so there are no surprises when it comes to paying taxes. Budget for all your taxes, and your accountant fees.
Consider outside funding
I would recommend that you bootstrap for as long as possible. At the same time, be aware of what is available for your company’s funding future. Use funding for growth only – not status, or an upgrade in your company’s lifestyle. Check out our article about early phase funding. There are a lot of options to consider!
Conclusion
Don’t neglect financial considerations for your startup. Have a solid plan, with achievable steps that lead towards your goal. If finances aren’t your strong suit, consider outside help to make sure your startup starts on the right path!
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Sources
- Early Stage Funding: Pre-seed, Seed, and Beyond
- What services should a tech startup outsource in 2021?
- 8 Financial Tips for Entrepreneurs Launching a Startup
- 10 Top Financial Tips for Early-Stage Startups
- Financial Management for Startups
- How To Manage Your Startup’s Finances From Day One
- How To Manage Your Startup’s Finances From Day One
- 8 Top Financial Tips for Early Stage Startups
- Finance 101 for Startups: 10 Things You Need to Know
