Building a successful business from the ground up is one of the most difficult things you can do. It is very easy to get overwhelmed when trying to launch your startup, and poor planning and focus can lead to many pervasive mistakes.
A major reason that so many startups fail is due to financial negligence. Here are some tips to help you avoid some of the common financial blunders entrepreneurs make when starting a new business.
1) Implement an Accounting System
- It is crucial that your business implements a system as early as possible. While it is certainly not necessary (or even recommended for that matter) to implement a fancy, high-end and expensive platform in the beginning, selecting a program that is easy to use and built to grow with your business is key. QuickBooks Online and Xero are typically the go to cloud-based accounting software platforms for small and medium sized businesses.
2) Develop Effective Cash Flow Management and Financial Projections
- A young business is consistently in survival mode, and in order to survive it needs to have cash on hand. All businesses should create a plan to project the amount of cash needed at specified intervals (quarterly intervals are typically best), and then ensure that it is possible. It is also recommended to have a reserve on hand equal to approximately 3-6 months’ operating expenses.
3) Establish Realistic Financial Goals
- Establishing financial goals will allow you to assess your company’s performance throughout various periods of time. These assessments should help you determine what needs to be done moving forward in order to stay on track and achieve growth.
4) Create a Budget and Stick with It
- This point goes hand in hand with the previous two. Once your goals are determined and certain projections are made, a detailed budget should be developed to help allocate your company’s limited funds to its most critical areas. Prioritize spending based on your needs and future growth plans, and once your budget is created, implement measures to ensure you stick to it. Monitor your spending regularly and reassess your situation and plan when your actual spending deviates significantly from your budget.
5) Develop Relationships with Banks and Investors
- Not all businesses require loans or investments to achieve success. Bootstrapping is typically recommended for as long as possible in order to avoid debt or share dilution. However, there may come a time when your business requires additional funding to accelerate growth. Developing relationships early on will help speed up this process and get your business to the next level much more efficiently.
6) Know your Tax Obligations
- Tax obligations may not even garner a thought when your business is pre-revenue. However, there are many items that will need to be considered when setting up shop. Hiring a professional with early-stage startup experience is the best course of action to ensure that you stay on top of your federal and provincial tax obligations as well as other issues such as payroll and sales taxes.
7) Seek Financial Expertise
- Most small business owners are not well trained accounting or finance professionals. They are also typically so emotionally invested in the business that their judgment is clouded. Serious consideration should be made for contracting out a professional organization to handle all things finance and accounting related. An outside perspective from a professional will ensure the company is heading in the right direction and will allow the business owner to focus all of his or her time on what matters most – achieving growth.
