There are many hurdles to overcome when launching a startup business but every good entrepreneur will know the best ways to overcome these hurdles. One of the biggest obstacles to overcome, and also one of the most important, is properly managing your finances. Properly managing finances is crucial to success when you launch a startup as this will determine how much profit you make and also ensure that everything is running smoothly, efficiently and legally. With this in mind, here are a few tips for keeping track of your finances and making sure that you are positioned to make as much money as possible:
Cash Flow Management
There are several reasons why so many startups fail, but the most common reason is that they run out of cash. It is for this reason why cash flow management is so important when starting a company. This should be done by carefully establishing a budget and sticking to it rigidly so that you know where every dollar comes from or where it is going.
You will need to decide what type of business entity to establish before launching as this will have legal and tax implications. Many entrepreneurs find it beneficial to start out as a sole proprietor and then change to a corporation or limited liability company (LLC) once they begin to grow. Being a sole proprietor can be beneficial initially as you are entitled to all of the profits, but you are also responsible for the debts and liabilities – this means your personal assets could be at risk, so it might be worth changing once you find some stability.
Launching a startup can be incredibly stressful, and there will be money coming in and going out from many different places initially. It is vital that you track and monitor every dollar to help with cash flow management, but also so that you can create accurate tax returns each year. Hiring an accountant is a good solution but this can be expensive, so instead opt to use professional tax software like UltimateTax software to monitor your finances throughout the year easily. This will make completing a tax return quick and easy each year too.
Time Is Money
Use your time wisely as every second spent doing anything unrelated to the company is costing you both time and money. Try to avoid spending time traveling to meetings if possible as you could simply save time by having video conferences or phone calls instead. In these early stages, this can make a big difference and ensure that your company starts off well.
Keep Expenses Low
It is obvious, but keeping your expenses low initially is a great way to generate revenue. Many entrepreneurs make the classic mistake of renting expensive, flashy offices or buying equipment which they do not need; this will put a great strain on the company from the get-go. Instead, try to find affordable office space or even consider working from home initially. In time, hopefully you will generate enough revenue so that you can upgrade, but for the time being it is best to keep it simple.
Selecting the right bank is an important part of the process. Take the time to shop around so that you can find the best bank in terms of fees, customer service, etc. It is also worth trying to find a bank that has experience in working with early-stage startups as this can be helpful and ensure that you get the assistance that you may require. On top of this, it is important that you keep your personal and business finances completely separate from one another.
Establish Financial Goals
Having a clear financial vision for the future will help you to stay on track. Create clear goals and milestones for the near future and a few years down the line so that you can make necessary adjustments for constant growth. Meeting small and large goals will also help to boost morale and keep you (and any employees) engaged at all times.
Prepare For The Worst
It may be a negative way of thinking, but preparing for the worst is a smart business tip that could help you to steer clear of trouble. Having an emergency savings account with around 3 months of living expenses is a great idea as this will provide you with something to fall back on if things do not go according to plan. Additionally, do not quit your main job until your business can replace this income – this can be stressful, but it will be worth it in the long run.
One excellent way to keep your expenses down is to outsource work instead of hiring employees. Having a team of employees can have its advantages, but it can also be very expensive so it may be best to avoid taking on employees (at least initially). Instead, you can outsource your work so that you are only paying for specific jobs. Additionally, the internet has made it easier than ever to find specialists from all around the world who you can use to ensure that the work is completed to a high standard and for an affordable cost.
Securing investment is important to fund the business, but this is easier said than done. It can be challenging to find and win over investors, but there is a lot of helpful advice for doing this online. You may find that you have to give up part of ownership, but this should not be too much of an issue and especially if the investor is someone who can be helpful with their expertise, contacts and finances. Once you have secured investment, it is also important to keep them updated on the business’s financial situation and show them the numbers. This ensures that they can see where their money is being spent and it also opens up the possibility for extra support if needed. Another good option when it comes to finding investors is to utilize crowdfunding – this is becoming increasingly more common and a great way to find funds for your new company.
You need to pay yourself a healthy salary so that you can keep your morale high and look after yourself. You do not need to pay yourself a huge salary initially, but be sure that you have enough to get by comfortably so that you can give the company all of your attention and avoid financial stress. Hopefully, you will be able to give yourself a pay rise in a few years, but make sure that you have enough to keep you happy when starting out.
Look to squeeze every penny by taking advantage of any discounts whether this is when purchasing equipment or from your vendors (look to do this a few times throughout the year). Before making any kind of purchase always look online to see if there are voucher codes that could be used or if it makes more sense to buy in bulk.
Getting sales and bringing customers in as soon as possible can help with your finances and help to get your company off to a good start. Many entrepreneurs make the mistake of focusing too much on their expenditures and do not focus enough on bringing money into the company. This is, obviously, the goal of the company and it is easier said than done, but make sure that you are putting enough effort into attracting customers early on. This can be achieved with internet marketing to increase brand awareness and reputation (more on this below). Whenever you are unsure about a business decision, simply asking yourself how these actions will increase your sales – if they don’t, move on.
One expenditure which is highly worth it is advertising as this should see significant ROI. You could have the best products or services on the market, but you will not succeed if people are unaware of your company. This can be hard initially, especially if you are operating in a competitive marketplace, but using the services of a reputable marketing firm can work wonders and help you to establish yourself as a key player in your particular industry through practices like search engine optimization (SEO) and pay per click advertising (PPC). Additionally, the majority of internet marketing agencies will provide web design services if you need help designing a website (although it can be cheap and easy to design your own professional website).
Launching a startup is an exciting period, and hopefully it will prove to be lucrative, but it can be difficult to manage your finances early on when there is so much to set up. With any luck this information will help you to properly manage your finances and hit the ground running so that you can find stability and grow. Properly managing your finances is key to success and will help you to maximize profit, so keep this in mind when launching your startup and you will soon reap the rewards.