Hundreds of startups are launched every year. But only a few of them are able to make it to the second year. One of the top reasons behind startup failure is cash crunch or unwise financial management by new entrepreneurs. Money, like time, is a finite thing and must be allocated extremely judiciously. Startups are already lean on capital and hence entrepreneurs should be very cautious with regards to financial management. Are you a first-time entrepreneur entangled with the complexities of finance? Well, the post below offers the top tips for a sound financial management for your new venture.
Underline the different types of business costs
Your business plan must have a dedicated section for finance and accounting. The said section will clearly outline the different expense areas associated with running a business. The major expense areas for any business are legal costs, marketing costs, staffing costs, business insurance and ongoing production expenses. If you are planning for a brick & mortar establishment, you should also count in establishment & infrastructure costs. When you have a clear picture of all the expense areas of your business, you have a better idea on where to and how to exactly allocate your capital or funding.
Create an organized budget & adhere to it
This is undoubtedly one of the key money-management tips for first-time entrepreneurs.
After you have underlined the different expense areas for your business, the next step is to set budget for each. When you will set the budget, create 3 columns for each individual expense area- Primary, Urgent and Extra/Avoidable. This categorization will enable you to allocate your funds more strategically to ensure the key areas receive the most attention. It will also prevent you from draining your treasury unnecessarily for extra or avoidable expenses. The main idea of a budget is to create organization in your management.
Having a budget is not enough. You should also make sure to stick to it. Check your budget at the end of every month and find out discrepancies between the estimated amount and actual expenses. It will help you to understand whether you are going the right track or need to modify your expenses.
Educate yourself
Finance is a serious department in any business and you must keep yourself well-informed about every aspect of it. One of the best steps to smart financial management in business starts with the knowledge of major financial terms. You should gather sound idea on the crucial terms like budgeting, interest, soft inquiry, State tax, subsidized & unsubsidized loans and so on.
Go through articles and columns on finance allocation, expense areas and financial management in your business. Find out finance-related articles that are specifically written for your industry and market. You should also check out webinars and podcasts to enhance your knowledge further.
Learn how to save
Finance management is not only about sticking to your budget. You should also learn to save. It will help you to beat sudden emergencies and also leverage your opportunity to boost your resources further. Here are some great money saving tips for businesses–
- Go for a shared working space (if your business permits) to save on rent
- Try virtual networking & communications with both clients & employees to save space & costs
- Hire talented dynamic interns instead of an entire pool of highly experienced professionals
- Outsource some of the jobs to save on overhead and staffing costs
- Try open-source & cloud software programs to save on business software costs
- Keep check on accounting department
One of the major reasons behind cash crunch in a business is unregulated invoices and late payments from clients. You must ensure a well-regulated and dynamic accounting department to prevent such issues. A smart accounting team lays the foundation of sound financial management for a business.
Improve your credit score
Make sure to check your credit score every month. Being a startup owner, you are certainly aspiring for sound funding from investors. Well, investors generally prefer businesses with high credit scores. Better scores affirm responsible and credible operations. So, if your credit score needs a boost, talk to a financial advisor on improving your score for wider funding opportunities.
Responsible and smart financial management is crucial when you are planning to make it big with your business.
