As many as 90% of startups fail, and the key reason that most of them don’t go the distance is a lack of funding, a lack of liquidity, and poor financial management. There are reasons for this trend: most entrepreneurs are fixated on the dream, and don’t necessarily enjoy the gritty detail of financial analysis. They have such belief in their ideas that they’re unable to see when they’re heading into choppy financial waters. In order to help you avoid this myopia, this article is all about managing your finances responsibly to ensure your firm’s longevity.
Courses
If you have had little training in financial management in the past, it’s important that you take some before you push forward with your business. That doesn’t mean enrolling for a bachelor’s degree in economics; it just means taking a few hours to get to grips with basic financial concepts and the responsibilities you’ll have when you’re managing a company. These include tax, insurance, liabilities, liquidity, assets, interest rates, loan repayments to name just a few.
If you’re able to get all of this terminology under your belt, you’ll be able to deal with more of what life throws you without having to dash to Google to find explanations on what’s happening to your finances. You’ll also be able to talk with expert advisors about key financial issues when you need to. Knowing how to form a personal household budget is one thing, but knowing how to manage company finances is another – and you need to learn about that before you get started.
Accountants
Many small businesses choose to ally with an accountant from the get-go. That’s a wise decision although, as we’ll come onto later, there may be more cost-effective ways to use technology in place of an accountant. What an accountant will provide you with is a person to speak to about your finances. Accountants can explain things about how your money is flowing that an app or software program can’t – so if you prefer a human, face-to-face explanation of money matters, an accountant is a useful person to have on retainer.
One of the most important benefits of having an accountant on your books is their particular knowledge about tax, subsidies and benefits. They can ensure that you’re paying the optimal level of tax for your firm, while also showing you where you might get access to support funding or subsidies to help propel your business forward.
Technology
As mentioned above, there’s a new tech product coming out every month that replaces much of the labor that an accountant will do for you. Many of these apps are designed specifically for small businesses, which means that they’re perfectly suited to your needs. The designers of these apps have taken great pains to ensure that the user interface (UI) and user experience design (UX) is easy to navigate and that you have a smooth, gentle onboarding process. This means you can download an app and use it to manage your finances in just a day.
Still, it’s important to be careful when you’re engaging with financial technology. Some companies won’t offer you a great deal of value and will command r a hefty subscription fee. Others will be too technical for you to use and will just waste your money and your time. It’s wiser to first consult an advisor on the best financial technology for small business before going ahead and engaging with this tech.
Balance Sheets
When startups fail, it’s usually because there’s an imbalance in their finances that could have been revealed by an accurate and up-to-date balance sheet. The importance of a balance sheet should not be underestimated: this relatively simple account of your incomings and outgoings will help you to keep track of what you owe to loan companies or the bank, what you’re expecting to receive in sales, and if these two key metrics add up in your favor or if you’ll be scrabbling for cash at the end of the month.
They may be dull to fill out, but a balance sheet is essential for your money management as a business. You can also engage with smart technology to help you run an effective balance sheet, and this can be found by researching online or speaking with financial advisors.
Budgeting
While there are many moving parts when you’re managing your company finances, your budget is one of the key pillars that’ll determine your profitability. You need to know how much you’re going to be spending each month, and that knowledge will help you to decide what to invest in, how much to hold in reserve, and whether you can purchase that next batch of stock. A budget is a way to help you plan ahead, but also to keep costs down.
One of the key ways to make your budget go further is to reduce your overheads. These are the operational costs of your business, which you may be spending too much on at present. Make reducing your overheads a key focus in your overall financial strategy to make your business more competitive, with lower price points, in the future.
Prudence
Business is often seen as a risk-taking game. You invest your own savings in an enterprise, and they might all be lost if your business ends up failing in the market. But risk-taking needn’t be a gamble: it should be something considered with prudence, research, advice, and careful planning. That’s certainly the case with the most important aspect of all in business: how you spend your money.
You may have a large loan or grant to play with, but you should always be careful about how you’re spending it. Keep some in reserve in case you face cashflow issues, and make sure you have a good idea of the return you might get for every bit of work you do. That way, you’ll experience less cash burn and you’ll hit profitability sooner as a business.
Make these financial tips the center of your money management strategy as a business to help you avoid the fate of the many startups that fail due to financial mismanagement.