A few decades ago, Liza Minnelli taught us that money makes the world go round. And, in the world of startups, nothing could be truer. Namely, your financial health is directly proportionate to the growth of your startup. Only by staying on top of your finances will you be able to make more data-driven decisions, avoid the most common pitfalls and mistakes, and nudge your business in the right direction. With this in mind, here are a few financial management practices you may find valuable.
Choose the Most Profitable Way to Get your Startup Funded
One of the most common problems startups face is the lack of cash. Actually, that’s exactly how 82% of them fail. And, to avoid to become just another statistic like that, you need to find an effective way to get your startup financed. For example, you could ask your friends and family for help. Statistics show that this is one of the most popular funding sources. It’s not surprising at all, given the fact that these are people who believe in your potential the most.
On the other hand, the majority of businesses decide to take out a bank loan. If you’re considering this idea, you need to know that it sometimes takes up to several months for a bank to process your application and decide whether to approve it. Not to mention that, to be eligible for a bank loan, you need to have a spotless credit history, which is impossible for young companies like yours.
So, if you need your money fast, there are numerous equally reliable and yet much faster funding opportunities. This includes applying for equity funding, taking out a fast loan, or selling invoices. With any of these options, you will be able to boost your cash flow within a few days. If you’re not in a hurry, on the other hand, you should consider some other funding methods, such as crowdfunding, government grants, angel investors, startup accelerators, or even a partnership with another company.
Stay on Top of Your Cash Flow
Your startup’s finances are just like your heart. They work silently in the background and you probably don’t pay too much attention to them. However, to make sure everything’s fine, you need to monitor them regularly. Unfortunately, staying on top of your cash flow is extremely complicated and it usually requires you to have an extensive experience in managing finances. For example, to evaluate your financial situation, you will have to know what financial statements like a balance sheet or cash flow statements are. And, this is just the beginning.
Of course, hiring a full-stack accountant that would do all the hard work for you is a much simpler option. However, since your budget is pretty limited, the chances are you won’t be able to afford to hire them in the very beginning. That’s exactly where another option shines and that’s using cloud-based accounting software. Namely, there is a plethora of platforms, such as FreshBooks or Xero that are designed specifically for small businesses. With them, you will manage to keep track of and manage your money inflow and outflow in real-time. All you need to do is choose the one that meets your business’ needs. Of course, as your business becomes profitable and your accounting gets more complex, you should consider hiring a professional to handle it.
Set Realistic Goals
When starting a business, we all dream of big. There is nothing wrong in believing that your startup may become the next Google, Apple, Starbucks, or Nike one day, right? However, you need to keep in mind that we’re living in an overly competitive entrepreneurial world, where things may turn upside down in a matter of second. And, when reality strikes, the unrealistically high objectives you set may backfire on you.
This is why you need to make informed decisions and set achievable goals. Sometimes, this means that you will have to scale down your business ideas a bit. And, no matter how terrible this may sound to you right now, this is actually the only way to gain a competitive advantage. For starters, focus on keeping all unnecessary expenses low. Do you really need a huge, fancy office in the heart of the city? The same goes for throwing expensive office parties and spending too much money on the state-of-the-art equipment.
Let’s be honest- you don’t need any of these. Moreover, instead of booking an office, you could consider outsourcing your workflow. Namely, we’re living in the era of sophisticated IT solutions that are rising at an astonishing pace. There are numerous instant messaging apps, cloud storage providers, and workplace collaboration platforms that allow your employees to upload, download, and access all their files instantly. Most importantly, they will be able to share their ideas and work together on important projects, irrespective of their time zone or location.
This opens the door for new opportunities for you, as well. First, these cloud-based platforms will help you save on your money, up to $11,000 per year, to be precise. Second, they allow you to monitor and assess each employee’s performance in real time. Above all, you are given a chance to connect with and hire the most renowned industry experts and start building an authentic corporate culture from the very beginning.
Stick to your Financial Plan
To boost your startup’s liquidity, you need to create a financial plan that works. Most importantly, you need to stick to it. This is how you will be able to achieve financial stability and keep the ball rolling, no matter what. For example, you could start with separating your personal and corporate accounts. Even though using a single account and credit card may seem like a simpler and more convenient option to you right now, nothing could be further from the truth. This will only make your bookkeeping and tax return even more frustrating. Once you separate your accounts, make sure you save enough money for yourself and your business every month. This will help you prepare yourself for any emergency situations in the future and give your cash flow a boost.
Sometimes, having a stellar business idea is not enough for you to launch a business and stay competitive. With today’s volatile economy, you need to learn how to save your money and, most importantly, how to use your available resources properly. This is why you need to build a thorough budget management strategy.
With the practices mentioned above, you will not only manage to optimize and boost your finances but also save your time and focus on some other, equally important aspects of growing your business.