Nothing spells disaster for a startup like poor financial health. Whatever the industry, however great the idea, if the numbers just don’t add up, there will be little recourse to get things back on track. Even if a business is still above water, any uncertainty over the numbers can destroy investor confidence and jeopardize strategic decisions, making it the quickest way to a steep and slippery slope. As those vitals take a downward spin, the dream of business ownership could be over before it has even begun.
Many projects fail due to financial hurdles, and one studies have concluded that running short on capital was the second most likely reason for a startup’s failure. But, with a clear-minded and methodical approach, you can keep your startup’s financial health on track and ensure that your well laid plans come to fruition.
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If you’re an existing or aspiring entrepreneur, here are seven gems that will help you keep your financial health in order:
Keep your budget top of mind from the beginning
You have to plan and follow a budget. This is even more acute for a startup operating on lean resources. When you are first starting out, capital can be extremely limited, and proper planning is critical to ensuring you can stretch every dollar. What’s more, budgeting will give you a confidence and clarity of mind that will come through when you present your project to potential investors.
Do not take shortcuts
Many startups will try to save a quick buck and handle all of their bookkeeping and accounting alone. To state the obvious, this is too high risk an area to take any shortcuts. I would recommend going directly for a digital service, instead of opting for a traditional paper-based firm. Technologically advanced cloud-accounting software can be an indispensable tool. It allows you to easily organize your financial data into reports that can be reviewed regularly. And if that data is in the cloud, you will have secure access to real-time data from wherever you happen to be (this is especially vital for today’s remote workforce).
Consistency is key
There is no principle more important than being consistent in how you record revenue and expenses. Having accurate data allows you to make historical comparisons, and better understand patterns in your business. You need to be able to understand where you stand now in comparison to yesterday, last month and last year. That same consistency needs to be integrated into your whole approach and should be applied to how often you update and review your financial data.
You should frequently review your revenues as you gain traction. Of course, you’re hoping for the best-case scenario here: to see consistent and steady growth in your revenue. But you have to remain grounded, and always face up to the reality of your financial situation. If you are seeing huge gaps in revenue, you need to determine whether this is an accounting issue or an underlying business issue.
Remember your receivables
Believe it or not, when you are spending so much time hyper-focused on delivering to your clients, it can be too easy to overlook that all important aspect of getting paid. You did the work, but did you collect the money for that work? You need to make sure that you collect on those invoices quickly to ensure a healthy cash flow. Looking into invoicing software would be a wise move. Failing to collect is something you certainly want to avoid, as it could lead to you being late on payments for your own bills or defaulting on debt.
Control your expenses
As I mentioned in the first tip, when you are first starting out, you need to stretch every dollar as far as possible. Checking your expenses regularly and keeping a shrewd eye to cut any unnecessary expenses is vital to ensure your money is being spent properly or is at your disposal for any investment opportunities.
Think for a second of your personal expenses: How often do you see ongoing payments and subscriptions in your bank statement that you don’t even recall agreeing to? The same issue can apply to your business on an even larger scale.
Listen to the experts
As the founder of your business, you’re passionate about your product or service, but pragmatism must be part of the package no matter how brilliant the idea. Novice entrepreneurs may not be well versed in every aspect of what it takes to run a business; truthfully, very few people are. Outsourcing finance expertise by hiring a consultant or firm that can guide you is a wise move. Moreover, you’ll have the freedom to focus on the parts of the business about which you feel most passionate.
Key takeaways: Keeping your financial health in check
When you start your dream business venture, you’re in a race to make that dream a reality. But the last thing you want to do is sprint out and trip over your own shoelaces.
Financial health, like the shoelaces on a shoe, maintains the structure on which a startup’s success or failure will depend. Training yourself to budget and to frequently plan and review expenses and receivables is a large part of the battle.
But above all else, I recommend seeking expertise. Finance is the last area where you want to be chancing your arm and squeezing the odd buck. If risk is your strategy, then ensure that your financial health is solid. That balance will give you the stability needed to play a higher risk game. Look for solid expertise in the area by way of a financial consultant to help with strategy, and take bookkeeping off your plate with a cloud-accounting software program.
As I often like to say, “Do what you do best and outsource the rest.”