Financial decisions matter the most when a company is in its infancy. Every little thing that the new company does – advertising, production, even rent – will take their toll on a limited budget. Since most startups don’t have much money to spare, it can be difficult to find the right balance between all the projects that need funding. Understanding what are the financial steps startups need to take in consideration is key for success.
So how do you organize your funds and prioritize what to spend your resources on? How do you simplify the process and eliminate the inevitable headache?
There’s actually a few financial steps startups should consider to do just that.
Use Separate Bank Accounts
One of the most important steps you can take is to separate your business and personal banking accounts. It can be tempting to keep the cash flow in your personal account; who doesn’t like money, after all? But by doing so, you’re making it much harder to distinguish between your personal and business assets.
It also acts as a security measure by ensuring that a simple mistake with a portion of your finances does not affect your personal and business life. Managers can eliminate the temptation to appropriate business funds for personal use by paying themselves a salary instead of merging their finances with that of the business.
Just think how much your decision making could be influenced by trying to hold onto that money, too.
It is also particularly important for entrepreneurs who think that they might sell their business in the future. The buyer will want a thorough understanding of the business’ finance history. This can be difficult if these are mingled with the owner’s finances. The simplified taxes can also be beneficial here since they make the sales process much easier.
Measure Cash Flow
Good records are at the core of every successful business. It is vital to keep track of the source and size of every piece of revenue. This allows founders to understand where the business is doing well and where it is suffering. It might seem overly meticulous to track certain expenses, but those need to be documented so that they can be cut as low as possible.
You can track these numbers by hand but it can be done more efficiently. Instead, it’s best to use accounting software that can track most of the information automatically; these programs usually provide an analysis that’s easier to garner information from as well. That ensures that no one forgets about any valuable information.
Get an Accountant
Taxes are extremely complicated. These play a critical role in the financial steps startups need to consider. Most businesses can claim a variety of deductions and use other techniques to reduce their tax burden. Very few people, however, have the working knowledge required to make that happen. Therefore, a proper accountant can save you a lot of money.
Getting an accountant or a finance advisor isn’t exactly cheap, but they can prevent many costly mistakes during tax season. The savings almost always exceed the cost as well. Since they tend to get flooded with requests near tax season, it’s best to cultivate a long-term relationship with a talented accountant to make sure that their services are available when necessary.
Invest in Customers
No business can make money without customers. That’s usually the biggest issue facing startups: How do we attract customers and make them aware of our brand? That means it’s crucial to invest heavily in discovering leads and attracting customers to the business. You’ll also want to invest in research to identify the business’ core demographics.
This is another one of the reasons that it is so vital to track income and expenses. That information will help to determine how much money the business can invest in these efforts. It should be a healthy portion of your budget, but you’ll have to measure that against the rest of your expenses.
Plan for Benefits
Employee benefits are a rarer commodity than they used to be. Now, employees are specifically looking for job opportunities that offer benefits as well as a competitive salary. They also appreciate benefit packages, such as support for a 401k plan.
Investing in benefit packages is expensive, but they make it much easier to attract good employees. The best workers can usually have their pick between several employers and they will pick the one that offers the best deal.
Even if your new business cannot offer expensive benefits, there are alternatives. Flexible hours, easy telecommuting and similar offers can be very effective. Not only can they lead to a more pleasant work environment and attract employees, but they are also fairly cheap for businesses to offer. One of the biggest benefits you can offer is by being an employer who they can connect with and feel empowered by – and that’s not nearly as common a job perk as you think it’d be.
Acquire a Business Credit Card
Most businesses need credit at some point. When people are working and buying in bulk, the ability to lean on credit is extremely convenient. Traditional loans are the most common choice, but they aren’t always appropriate for daily expenses or short-term credit. Instead, it’s wise to invest in a business credit card.
The card acts as a buffer against financial problems by ensuring that the business can make purchases without waiting for its usual income streams to provide the funds. That ensures that there are no unnecessary delays. It also makes it possible to consolidate most bills into a single place, which makes the administration process easier to handle. You will need to pay the bill in full each month to avoid interest fees, but a business that does so can use a credit card to great effect.
There are plenty of ways to help your startup’s financial situation, but they all begin by learning more about what your company’s needs will be. If you can effectively diagnose your expenses and income sources – and effectively record them – then you’ll be primed to watch your business flourish.
Do you find these 6 financial steps startups need to follow useful? Have you got any other important step you take on a daily basis to make sure your startup is successful? Share your thoughts in the comment section below.
Great advice! Thanks for sharing this!
Very interesting read! I would add to these points that it’s crucial to be prepared for the worst possible situation. As a founder, I always make sure that I have in my bank account an “emergency saving”, as I like to call it. Plan and be prepared for the worst!