Money is a big problem today, with stats like 70% of college students worrying about money. And startups are no different because they are notorious for experiencing problems with money. One of the most common reasons startups fail is because they mismanaged the funds they had. This article is going to show you how you can go about keeping your small business finances healthy and strong in the long-term.
Through adopting good financial behavior, you can ensure that your startup has the best possible chance of success.
Know What You Have
To begin with, you should be able to look to your finances and instantly pinpoint exactly how much money you have available. At the end of every month, you should perform a status update to discover how much money you have at that moment.
It may not necessarily be money that's available to use, but you should know whether you are in the black or in the red. Update your spreadsheet at the end of every month so financial trouble never sneaks up on you.
Budget for Each Department
Next to knowing what you have you need to know how much each section of your company has available. How you allocate the budget for each department is up to you. Some companies prefer to pile their money into their marketing departments, whereas others prefer to spend the most on product development.
The point is you should immediately know where your money is going and what it's being spent on. Every so often, review the performance of each department and consider whether you need to start allocating your money elsewhere.
What about Your Debt?
It's true that bootstrapping startups are becoming trendier. On the other hand, most startups continue to take out loans in order to get them through the first few months of operation. Consider what loans you have taken out and the monthly payments you will be expected to make. You should know how much money you have both before and after making these payments.
Startups often lose control of how much debt they have, and that's when they start to run into problems. Take into account your accounts receivable and your accounts payable, so you can keep a firm grip on your debt.
Be Willing to Scale Up and Down
The art of managing your finances wisely is to be able to scale up and scale down according to your financial fortunes. For a start, you need to remember that sometimes you need extra money available in order to keep momentum rolling in the event that you manage to score a breakthrough.
At the same time, taking a step back and scaling down your operations can give you some breathing room in order to pivot when you need to.
Too many young entrepreneurs fall victim to either trying to spend everything they have or being overly conservative.
Create a Savings Fund
Startups need to be able to save for a rainy day. Unlike established companies, startups often find themselves unable to do this because they need to have all the money available right now. This leaves them vulnerable because if they experience a downturn in the market they are going to run into a situation where they have no reserves to work with.
How do you begin creating a savings fund as a startup company, though?
Rather than throwing everything back into the company, try to separate a small amount. Put it in a separate account. You should aim to save enough so you can operate using that money for between three and six months. Some companies decide to save as much as 25%, whereas others decide to save as little as 5% of their income. It all depends on your industry and your fortunes.
A savings fund is an example of good financial management because it will help you to get through the times where you have to run at a loss.
The most important tip of all is to stay fluid. Your financial policy needs to change according to the times. There are no rigid rules you have to stick to. If the market warrants you have to spend more, so be it. If the market warrants you have to save more, so be it.
Conclusion - Get Professional Help
Sometimes you may need professional help to get your finances in order. Search for an accountant firm that can help you implement the financial changes you need to become profitable. The help of a professional can ensure that you are setting yourself up for a bright future.