The health of your finances is directly proportionate to the success of your startup. In business, it’s not about saving money, but judicious use of available resources. Here’s what you need for better financial management of your startup.
If you’re thinking of launching a startup then you’re in for a wild and exciting ride, and it’s going to be challenging in the beginning but once you get the hang of the startup financing aspects, the process will be easy.
1. Learn to cut costs
Before your startup reaches the break-even, you will realize that you cannot make profits without cutting costs. In order to know and understand about your finances and especially expenses, you will need to know the following details –
· Cash flow statement
· Income statement
· Balance sheet
Your cash flow statement reflects the in and outflow of cash; the income statement tells you the revenue your startup made within certain period while the balance sheet shows these two apart from the liabilities and assets of your business. These statements should give you a clear picture of your finances every month. Find ways to cut costs, eliminate expenses that you can do without. For instance, do you need to pay a digital marketing agency? You can use automated social media tools. Similarly, use various free tools of email marketing, CRM etc.
2. Maintain financial discipline
Keep your personal and corporate accounts separately. Make sure you save enough money for yourself and your business every month. This will always keep you ready for any emergency situation in future and will compel you to keep a cash flow in the business. Create a financial plan that works for your business. Get professional advice or watch tutorials about creating robust financial plan. Get an accounting software that gives you an overview of your finances. Financial stability will always keep your business running, will help generate good leads for your business and will save you from any unforeseen tax burdens or expenses.
3. Measure performance
As a small business owners, you need to not only know what are your expenses but also how is your money spent. Your accounting software should have the bandwidth for recording every financial transaction that happens in your business. Make sure it also gives you a detailed account of your past financial statements. Through this, you can ascertain your common financial ratios to help you see if your business is underperforming or performing at an expected level. This kind of measurement would help you reduce wastage and to judiciously utilize your money.
4. Get a cloud accounting system
Cloud accounting is proving to be most efficient especially for small and medium businesses. It helps your business work faster and smarter and saves a lot of your time, energy and resources. Cloud accounting helps your team collaborate easily and provides an overview of your financial transactions. Since it gives you a multi-user access, you can collaborate with experts, advisors and your investors. Cloud accounting also helps you automating tasks that otherwise waste a lot of your time. These include assessing regular payables and receivables, sending payment reminders, getting access to accounts while travelling etc. Cloud accounting system helps you run your business from practically anywhere. Your data is always secure while you save on administration costs, version upgrades or maintenance.
5. Get a hang of taxation and payments
You have to face it at some point. You might as well now. Right from the beginning of your business, make sure you know the taxation norms about your industry. Speak to your accountant or tax advisors or get help online. If you want to save costs here, talk to peers in the same industry or friends who run similar businesses. It’s possible to keep a good tax plans since taxes don’t change overnight. Following tips would help you create a credible tax plan for your business –
– Have a running book-keeping and accounting system in place.
– Get in touch with a credible and a certified tax planner or accountant who will help you with filing your taxes.
– Keep your personal credit card away when you are making company expenses. This would save you a lot of confusion.
– Set up funds for either charity or retirement because these are tax deductible and would give you exemptions in India.
6. Managing your cash flow is imperative:
One important aspect of a financial plan for a startup is managing your cash flow. Many startups tend to fail because they run out of money. You need to keep a track of where your money is going and coming from because if you don’t then your business will be in a very precarious position. No matter how good your idea seems, once you realize you have run out of money your business will come to a standstill. The only way to get on top of your cash flow is creating a reasonable budget and sticking to it.
7. Monitoring the company’s spending habits:
Startup financing will include expenses in every direction. It’s suggested that you don’t hire a full-time employee to handle your books, at least in the beginning, because it can get quite expensive and you may go above budget; you can go for cloud accounting software that comes with affordable subscription plans to track your expenses and stay organized.
Accounting software will help with managing your cash flow and you will see where the money is going, especially during tax season. Once your business starts growing and gets more complex, you can consider hiring a professional.
8. Limit your spending in the beginning:
During the initial stages of a startup, it’s best to spend money on the necessary stuff. Don’t go all out by having catered meals every day and huge office space in the beginning, you have to think properly about your expenses and focus on generating revenue; income should be your top revenue. Startups tend to focus on luxury amenities and this leads to going over the allocated budget.
It can seem daunting in the beginning, but as long you don’t lose sight of your finances and your passion, success is bound to follow.
Financial planning and management are crucial steps in running a sustainable business. If you need help about managing your finances, talk to us.