For those small businesses just starting, getting a handle on your finances might be a bit more involved than you anticipated. Money hurdles are going to arise—especially in the beginning. Maintaining cash flow could be an issue. Not to mention, adhering to a budget (hopefully, you’ve created a budget) isn’t always as easy as it seems. Financial missteps are among the top reasons why so many startups ultimately fail. In this article, we look at a few tips and some financial advice for better dealing with your finances in the early stages of your startup.
Have a basic accounting system. You don’t need to go overboard as far as establishing your accounting system in the beginning. That said, you do need some form of system to this end. It can be relatively basic—in fact, simpler is better when you are first starting so as not to get too overwhelmed as you have a ton of other things to deal with. You might start with something such as the most basic QuickBooks program. The key from an accounting standpoint is to stay organized more so than anything else.
Keep careful track of your accounts payable. In the beginning, most companies will have more money going out than coming in. Establishing positive cash flow is imperative. One simple way you work toward this is to be diligent about all of your expenses. Keeping a careful record here of your accounts payable will make a difference. Seeing what is owed and when it is owed will help you figure out precisely how you might cover those expenses. Paying those bills on time is so important to any new company.
Have a process for collecting money. Just as important as knowing what you have gone out is understanding exactly what you have coming in so that you can identify when money owed is late and thus do something about it. Have policies in place for what happens if a payment is late, and stick to those policies. Letting customers slide without paying is only going to hurt your company in the long run. You could even offer discounts or incentives for those who pay early. Again though, you want to have a process in place for dealing with those late payers.
Create financial projections. Once you’ve devised a budget and have some sales projections, this is when you also want to make more meaningful financial projections for the company. You could break down spending by the department for example. Ideally, you will want to forecast about three years out, as beyond that is rather difficult to do with any sort of accuracy. Once you’ve made such forecasts, plan on updating these monthly, as things shift and the picture becomes clearer moving forward.
Devise that budget. As your startup gets underway, you will begin to have a better sense of how much revenue you bring in in a given month or year for instance. You will also begin to more clearly see where your expenses stand. In subtracting these expenses from the revenue, you have a basis for building your budget. As you work along, you may find that you need to re-budget based upon certain milestones, and that is fine. The key is to stay on top of where you are financially at all times, and the only way this can be accomplished is with diligent budgeting practices.
Create financial relationships. In other words, once you’ve determined which bank you’d like to work with, you want to focus on forging a relationship with that particular bank. In the beginning, you might think about comparison shopping; which bank has better rates? Better loan programs? Better customer support options? And perhaps most importantly, which banks have helped to foster startups?
Build your team smartly. You may be tempted to hire a bunch of staff in the beginning, but this could get you into trouble financially. Only hire for those jobs that you know you need to be filled in the early stages. You could also get creative here and perhaps think about outsourcing some of the tasks to freelance workers—this saves you the cost of hiring an actual employee and yet you still get a qualified and experienced professional. When you do hire employees, be strategic about benefits packages and incentives as you do want to attract talent but without breaking the bank.
Understand your taxes. Given that a startup is in the infancy stage, they may not be seeing significant (or any) revenue; therefore, the issue of taxation may not be at the forefront of their minds. However, this is something you want to start thinking about sooner rather than later. Many startups will consult with an accountant in the beginning phases to get a better handle on tax responsibilities and so forth. An accountant can assist regarding issues of payroll taxes and 1099s for example.
Figure out if you need additional funding. For some startups, raising capital on their own and/or self-funding does the job. This way too you’re not indebted to anyone or at the mercy of an investor. That said, depending on your industry, etc. bootstrapping your startup may not be feasible. In that case, you might have to look for additional funding. You could start with your family and friends—just be careful of straining your relationships in this regard. You might also look into crowdfunding for additional capital. Some angel investors also specialize in helping startups get going.
First Union Lending is here to help. We want our clients to thrive and ultimately succeed. This is why we have several fast and flexible business loan programs available. With resources ranging from 5k to one million, we can get you the cash you need right now—not weeks or months from now. Some even get funded in as little as two days. Call today!