Fancy to guess the number one reason start-ups fold?
If your first thought is because they run out of money, then congratulations, you are correct. But even if that wasn’t your guess, it probably comes as no surprise – managing a company’s finances isn’t an easy task, and it’s doubly hard when you’re balancing financial responsibilities with the all of the other action items required to get a business off the ground. But follow these five pieces of advice, and you can hopefully get your business’s finances under control so that you can focus on everything else.
- Hire a finance person
We know what you’re thinking – you’re a startup, you can’t afford a CFO. But unless you already have a finance background, bringing in a team member to manage money or hiring an outside accounting firm will be one of the best investments you can make. It will take the onus off of you to be managing the finances so that you’re able to focus on building the business.
- Know the different between profit and cash flow
Even if you do have a CFO or accountant, there are a few financial terms you should know as someone who is running a company. The most important of these is the difference between profit and cash flow. Put simply, profit is revenue minus expenses, while cash flow is the movement of money. Just keep in mind that these things are different and that your cash flow does not necessarily mean profit.
- Set up a cash reserve
This may sound like a no-brainer, but setting aside a healthy cash reserve at the outset of starting your business is an incredibly important step to take and one that should be not be skipped over. Just don’t get greedy and spend it on unnecessary extravagances like brand new tablets for the entire team, no matter how much you may want to; you’re likely going to need a rainy-day fund at some point, and being able to tap into that cash reserve for the right reasons is going to feel much better than blowing the money on something you just don’t need.
- Invoice early
Sending out an invoice for services rendered as quickly as possible is one of the best ways to increase your cash flow, so be sure to have those to clients as early as you’re able. In true need of the cash and concerned they won’t pay until the deadline? Why not incentivise early payments by offering a discount – even just a 10% discount could be enough of a motivation for your client to pay up, and it helps you get that money in your account faster. Win-win.
- Meticulously track spending
Even if you’ve brought on board a finance person, you should still be keeping an eye on your spending – and the easiest way to do this is through financial software. Look around to see what all’s available and will work best for your company (we obviously recommend Financio for startups and micro SMEs!) and then get cracking.
Following these five rules of thumb should help you avoid the dreaded shutdown due to financial reasons – keep your eye on the prize, make prudent financial decisions and you’ll be well on your way to being in the black.