Establishing a strong financial infrastructure is critical when starting a new business, yet it’s often an afterthought for early-stage entrepreneurs. Every organization is always interested in one thing – managing financial transactions. Running a business requires making a lot of financial decisions. What practices can you use to help you manage your startup finance efficiently?
1) Putting a cap on operations
Haven’t we all heard success stories that started from a one-bedroom apartment or garage? For an early stage startup, the start is usually not with a splash. With modest means, you can start small to save on running an operational office. Until you raise your first round of funds, you should handle your finances cautiously. If need be, don’t hire any new employees other than the core team.
Also, you should not raise funds if you don’t really need it as it will be the most expensive cash you ever buy!
2) Manage and log in all your expenses
It is crucial for every entrepreneur to keep track of all their expenses to ensure they are not going overboard. When you start, keep it basic.
You should also learn timeless principles of managing your expenses. To do this, read financial statements to know about your money, income, and expenditure. If your costs are higher than your profit, then your startup will sooner or later collapse. Maintaining financial stability requires knowing four essential details as listed below:
- Balance sheet – This reflects shareholders’ equity, liabilities, and a company’s assets.
- Income statement – This reflects the revenue your organization makes within a specified period.
- Statement of shareholders’ equity – This represents the funds that the business gets through preferred and common shares.
- Cash flow statement – This analyzes your cash inflow and outflow, investments and operating activities.
Documenting transactions right from the start doesn’t take much time. In reality, it really comes in handy later during fund raising when the due diligence is done.
3) Maintain personal financial stability
As a business owner, it is easy to mix up personal funds and those from the business. This calls for the need to have a clear distinction between the two finances to not only enable you to save but also avoid liabilities in the instance of customer debts.
How do you manage your consumer debt issues?
There are several things that advisors can do to help their clients deal with consumer debt and to ensure that you are no longer on hold due to this debt. Creating a budget and negotiating with creditors can go a long way towards helping you to stay solvent and pay off your bills. To make it simpler, here is what you need to do:
- Create and maintain a realistic budget.
- Use home equity lines of credit to help you out of high debts and auto loans.
- Talk to your advisor to ally with local consumer advocacy groups that can help you to structure a debt repayment plan to get back on your feet.
- Do some hard bargaining through your advisors to get a better deal on the terms of debt repayments.
- Choose payments by deciding which bills should be paid for the time being.
- Opt for bankruptcy as an option of last resort. If it’s the only alternative that you have, confirm with your advisor on the best manner in which to proceed.
To maintain financial stability, define your role in business and pay yourself what someone in that role earns. In addition, aim at creating an efficient financial plan for yourself, and if this is not something with which you are familiar, seek professional assistance from an auditor, accountant or an economist.
The benefits of ensuring that you have a sound financial structure are immense. Failure to have such a plan has resulted in many startups going broke not long after launch, something that entrepreneurs can do something about. Maintain financial stability to shield you from liabilities and tax burden, as well as generate profitable business deals.
4) Monitor and measure performance
Measuring and monitoring your performance is an efficient way of keeping tabs on your profitability, cash flow, and other non-financial factors like staff turnover and customer satisfaction.
As an entrepreneur, you need to keep track of how your money is being spent. Your accounting department should have the capacity to record every financial transaction that occurs in your startup.
Have a detailed record of your past financial statements to protect your future cash flows, expenses and revenue.
Using common financial ratios to assess your business performance will also help you know whether your business is underperforming or performing at an optimal level.
Monitoring figures will help in minimizing waste and maximizing efficiency.
5) Consider using a cloud accounting system
Take advantage of cloud accounting software; it will help your business to work faster and smarter. When you work in the cloud:
- It will enhance collaboration among team members.
- It will help save lots of time and money.
- It will give you a comprehensive overview of your financial transactions on time.
- Updates and backups will be automatic, and you won’t have to be paying for system administration costs, maintenance, version upgrades and server failures because the cloud accounting service provider perfectly manages all this.
6) Plan tax payment
You cannot effectively run your business if you are unable to understand and plan your tax payment. Every organization must be doing tax planning with the following aims:
- To create efficiencies
- To save money
- To reduce business tax liabilities
Tax planning takes a comprehensive look at the expenditures and purchases plus timing of revenues in order to save as much money as possible.
If you can take advantage of the above tips for staying on top of your startup, you will see how exciting it will be to run your own startup. You will be able to handle your financial transactions in a lucrative manner. Don’t allow your business to suffer due to poor financial management. Secure its future now!