Money Management Advice for Startups

Working with few startups, i know too well that one of the main reasons businesses fold is because startups run out of cash. We’ve seen it all around us, startups overextend themselves and because they are not tracking their money at all times, they wake up one day and realize their year-long runway has been reduced to a week.

Financial literacy is essential for every entrepreneur. You need to understand your numbers — to understand your business better, make better decisions, make fewer mistakes, and hopefully turn a little cash in to a lot of cash.

Your annual income is not equal to your net worth. There are people who have money, and there are people who are rich.

Sometimes entrepreneurs think they can leave the finance and the numbers to the bookkeepers and accountants/auditors. That’s a really bad idea. You certainly want to have a bookkeeper. You certainly need accountants/auditors. And you can use them to collect and analyze the financial data, but you need to understand the underlying financial flows of your business. That’s key to your understanding of how to manage your business. And sometimes finance is not about money. So for example, how long will it take to get a customer to buy your product? How much cash do you need to get to this milestone? How much do we spend on marketing in order to generate the revenues we’re looking for? How long will it take to convert a prospect into a paying customer? These are some of the questions that investors are going to ask you that you should be asking of yourself that finance can help you answer.

If money management isn’t something you enjoy, consider my perspective. I look at managing my money as if it were a part-time job. The time you spend monitoring your finances will pay off. You can make real money by cutting expenses and earning more interest on savings and investments. I’d challenge you to find a part-time job where you could potentially earn as much money for just an hour or two of your time.

Trying to run a business without carefully managing cash flow is like trying to paddle upstream without an oar: you’re not likely to make it to your destination. Even if you do, you’ll be so exhausted you won’t have the strength to go on.

So, instead, take steps to ensure your business will be healthier. Make sure you’re rowing in the direction of profit by following these 10 tips on how to manage your startup’s money.

1. Know when you’ll break even.

Knowing the point at which you’ll break even won’t necessarily impact your cash flow, but it will give you goals to strive for and a ready-made target for forecasting where your cash should go in order to reach that goal. If you focus on that goal, and the milestones you have to hit to reach the break-even point, you’ll be smarter about how you spend your startup capital along the way, and will budget accordingly.

2. Keep your eye on cash-flow management.

You need to avoid focusing too heavily on profit. While that may sound like a contradiction to my first point, it’s far from it. You look at your profit and break-even point in order to set benchmarks — but you still need to maintain focus on cash-flow and spending. That doesn’t change just because you cross over into profitability.

3. Always maintain a cash reserve.

The unpredictable nature of a business is just that, unpredictable. A solid cash reserve for any unforeseen circumstances or emergency pivoting will make trying times less hectic and will help cushion any blows. Having a reserve will also allow you to stay calm and keep focused on growing the business, steadying the ship across any turbulent waters.

4. Manage funds better.

Unless you absolutely have to (which is rare), you shouldn’t handle the money for your business. That includes tracking it and handling your accounting. Hire an accountant or financial advisor to tackle this task for you. If you can’t bring on the extra help, designate a trusted employee to be a cash-flow monitor.

5. Collect receivables immediately.

Try to make any invoices “due immediately” and limit the use of net terms longer than 15-20 days. If you can do so, delegate the task of keeping an eye on receivables and customer follow-up to get money in as quickly as possible.

6. Pay taxes and regulatory fees on time

Pay income taxes, TDS, VAT, and other regulatory fees on time to avoid fines and penalties.

7. Extend payables where you can.

While you want to bring payments in as quickly as possible, work with your suppliers and vendors to get the best deal you can and extend payables to net 60 or more, if possible.

8. Spend only on essentials.

Part of your forecasting model should give you a strong view of the necessary expenses that are coming down the pipe. Outside of the most essential purchases, you want to minimize spending and eliminate costs that aren’t essential to your operation until you’re profitable.

9. Be smart about hiring.

Don’t hire until you absolutely need to. If you can recruit top talent, a highly skilled worker is likely to be able to tackle the work of two or more mediocre employees. You’ll probably spend a little more in salary or benefits to get that top talent, but that amount is still bound to be less than you’d spend on multiple employees covering the same task who make more frequent mistakes.

10. Make the best use of technology.

Always back up your files and cash-flow spreadsheets, to secure cloud storage. Not only will this keep your data secure from local file corruption or data loss/theft, but it will also make it easier for you to gain access from anywhere you have an Internet connection. Use accounting software’s like Tally to keep track of your financial records.

Rather than just say, “I want to build a multi-million dollar company,” you need to break financial goals down into reachable and measurable ones.

Rather than just say, “I want to build a multi-million dollar company,” you need to break financial goals down into reachable and measurable ones. Monthly, weekly or even daily revenue goals allow you to stay on track and make the adjustments necessary for constant growth. You can even set milestones to hit along the way, giving you a lot of smaller goals to constantly hit. Knocking out little goals can give you the confidence needed to keep powering through the entrepreneurial journey. And I hope you will see finance not as a dark art, but rather as a powerful tool to help you build a brilliantly successful company.


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