It is great if you have found a billion-dollar idea and launched a startup, but the responsibilities that come afterward can be overwhelming.
One of the most daunting tasks for entrepreneurs is to keep track of their finances, and it is understandable. The cash flow management in an organization, be it robust or an early-stage startup, is challenging. Building a company is just the start; there are decisions and changes that need to be made in order to set it up to scale. If you do not have a financial or accounting background, things are even more complicated, and there is no point in employing a full-time finance manager since you are an early-stage entrepreneur with a tight budget.
However, there is no need to be discouraged; taking care of your finances is not as hard as it sounds. There are a few practical ways to get your startup’s finances in order.
Open a business bank account
Opening a business bank account is one of the easiest and most effective ways to keep track of your finances. Maybe you do not deal with a significant amount of money in the early stage of your business, and you may think that a business bank account is unnecessary. But it is a wise move that leads to significant results. First, it helps you distinguish between personal and corporate expenses and avoids a potential logistical nightmare. You are less likely to spend money from this account for personal purposes, so keeping your personal and business finances separated is a safe choice. Second, a business bank account gives legal protection. Based on your business’s legal status, such an account can protect your assets. In the unfortunate event of a court case caused by someone suing your organization, a business bank account proves th
at you have nothing to do with that.
Manage your cash flow
Cash flow refers to the money that moves in and out of your organization. Once you understand how all this process works, help the job is done. Therefore, when you earn more than you spend, you have a positive cash flow, but you deal with a negative cash flow when the contrary happens. Given the number of invoices and transactions that have to be made every day, it is normal to find it hard to keep track of the money flow. That is why it is vital to adjust your inventory so that you can survive this exhausting process of money tracking.
When talking about cash flow, you generally have to take into account two factors: inflows and outflows. Inflows relate to the amount of capital coming into your company, mainly from your customers, whereas outflows refer to the movements of assets out of your company.
Determine your startup’s market and financial logistics
Before embarking on this long run of operating a business, you have to ask yourself some critical questions. Do you have enough money to start this business? How long will it take for your services or products to become rewarding? But we do not have an exact answer to these questions because it is only up to you how you organize your business finances. Our recommendation would be to narrow down your services as much as possible, at least initially, and find your niche. Once you understand your niche, your objectives will be clearer, and so your finances.
If you are in the startup phase, it would be wise not to overspend and always look for methods to save money and keep them organized. Everything from your financials, KPIs (key performance indicators), cap table, and legal documents needs to be in order, so make sure you use cap table management for startups to record your historical rounds, track your company loans, and more. This way, you will be able to determine your financial logistics and deal with economic issues that may ring in.
Prioritize your expenses
As a startup owner, it is inevitable not to have expenses, and the key is not to avoid them but make a clear distinction between what is essential and what is optional. This categorization will further provide more insight into the company’s financials and allow you to organize limited cash in areas that require improvements. You may also want to introduce a steward ownership model to make sure profits serve the company’s purpose. This model aligns your interests with investors’ and employees’ interests to achieve goals faster.
Research your funding needs
Launching a startup comes with a lot of needs, including money. So, you may need a loan, but before making such a major decision, be clear on your business needs. Maybe you can bootstrap your ventures and avoid outside funding. While there are many positive aspects to taking a loan, that is, it can grow your business, there are also disadvantages that may be felt in time. Depending on your business, many loans are available, including grants, merchant cash advances, invoice factoring, peer-to-peer lending, etc. Thus, we advise you to carefully research your funding needs to be able to make an informed decision.
Jump the digital train
Fortunately, the times when you had to do manual accounting and bookkeeping have passed. Now there are various tools that can make these tasks way more manageable and thus boost your startup’s productivity. With the wide range of cloud-based accounting software, you have plenty of options, so if you are still keeping your records on paper, it is time to rethink your choices. Accounting software helps you keep track of your finances, streamline operations, and minimize the risk of human error. Besides, it allows workers to focus on core tasks and not spend hours working on repetitive tasks. It is an excellent choice if you have to deal with invoices daily; invoice management can be quite stressful, especially when searching for a month-old invoice.
There is a lot to do when launching a startup. All the tasks may seem downright stressful, but the truth is that if you start with baby steps and are serious about your financial management, nothing will go wrong.