Balancing the books from day one is a favor you do for yourself and your startup. It’s essential that the numbers all match up so things stay on track; startup failures can often be traced to problems with finances. Having all your ducks in a row will help you keep your business active and profitable.
But where should you start? It can feel a little overwhelming to tackle something as large and complex as business finances. Don’t fret — just break it down into a few steps and you’ll have a good idea of where the money is coming from and going to.
Know Your Resources
If you don’t have a clear picture of the resources available to your startup, it’s time to get one. Money is the lifeblood that keeps the heart of your startup pumping — it pays for supplies, marketing, salaries, and other essentials. It also ensures your startup can continue to grow.
Whether you’re operating from your savings, angel investments, or money coming in from sales, it’s essential to visualize your cash flow. Try to project and see how much money you’re going to need to stay operational for three months, six months, one year, and five years — then see whether you have enough resources to get by. If you don’t, figure out your plan for generating more cash flow.
Prepare Your Budget
Before your startup can succeed, you’ve got to make a roadmap to follow. Don’t just give in and start spending recklessly. Instead, consider a budget for a few different amounts of time. What will you need to get your product or service operational? What will you need to reach out and find customers? How will you pay your staff?
Consider these things as you create your budget:
- Personnel, including benefits if applicable
- Rented space
- Marketing budget
- Technology budget
- Licenses, taxes, etc.
Creating a budget will help you have a better understanding of exactly how much you need to get by. Don’t worry if things don’t seem easy when you look at your budget. Like Michael Martin of RapidSOS says, “If you’re too comfortable, you’re not being challenged.”
Track Your Spending
It’s simple to spend money — $500 for a print ad or a new $35,000 salary for a receptionist can fly out of your hands as easily as agreeing to the deal. It’s important that you keep an eye on where all of these expenditures are made. Doing so will ensure that you have an idea of how much you’re spending on each aspect of your business.
One way to keep track is to use accounting software if you aren’t already working with a finance professional. It can keep track of your receipts, show you what might be deductible, and assign your spending to categories. A pie chart of where your money is going is a quick way to determine what you’re prioritizing financially — and whether adjustments need to be made.
Also, remember to keep the right documentation for your taxes.
Plan for Bad Days
Only very lucky people operate a startup without a single bad day. But very clever people plan for bad days to minimize their impact on the business.
Try not to allot every penny that your business has. There will be things that come up which are more expensive than you expect. Supplies can be delayed or damaged, you might find yourself needing more personnel, or the car your executive staff takes to meet with clients could need a tune-up. Having at least a few thousand dollars saved and not earmarked for anything specific ensures that when trouble does pop up, you have the resources to cover it.
One of the reasons you’re running a startup is to generate income — so make sure that you’re doing it the right way and protecting yourself in the process. As Peter Marek of Invoice Home says, “So many small businesses don’t protect themselves with the appropriate legal language. This can leave them little recourse in terms of late payment.” In other words, don’t be so excited to land clients that you aren’t taking care of your bottom line.
Your contracts should have terms that explains what happens if a payment is late. You should have the option to charge an extra fee if a service is cancelled before the end of the contract. Make sure that you’re discussing payment terms with clients, contractors, and partners before work even begins. Doing so is essential if you want to keep money coming in.
Keeping control of your startup’s finances is one way to aim for success. Even if it seems tricky at first, don’t let that stop you from taking the reins and managing your money. You’re more than capable of doing so, especially with the apps and software available to startups these days. More than anything, having a clear picture of where your money is coming from — and how you’re going to make more — will aid you as your startup matures.