Good financial management is a fundamental tool for all businesses, whether big or small. It is especially essential for startups, which need to save costs to boost the company’s operations. Most business owners treat financial management as an afterthought, threatening the viability of their business.
As a startup, your financial structure is less sophisticated since you only have a handful of staff and vendors to remunerate. It is, therefore, crucial for you to introduce effective financial management systems at this point. Let your business grow and adapt to the oriented financial structure.
Two of the main reasons behind startups failing to expand and grow are; poor financial flow and lack of a financial cushion. Over-reliance on debts and equity to fund your business without managing losses can negatively affect your business.
Poor cash flow can sabotage your company due to poor financial accounting and lack of financial viability. Bearing the above in mind, you get to see the essence of proper financial accounting and management.
Most startup business owners get into the business as novices with little knowledge of managing a business. It is essential to identify resources to guide you through the rut—one key to succeeding in your business is attaining a positive cash flow.
This guide will help push your business to the profitability it greatly deserves.
Track Your Cash Flow
It would be best if you track your cash flow every month. Cash flow refers to the movement of money in and out of your business. Income is money that comes into your business by selling your product, whereas expenditure is the amount of money you pay to keep your business running. Examples of expenditure include rent, bills, and utilities.
It is fundamental for your company to attain and maintain a positive cash flow. A positive cash flow is when your income supersedes your expenditure. Your firm, therefore, is stable enough to manage any unforeseen events.
With a negative cash flow, your business cannot cover the expenditure costs due to the low income. It is usual for startups to experience this shortfall and later return to a positive cash flow state.
Keeping track of your cash flow helps in identifying losses and prioritizing the essential components of the business.
Additionally, overdue payments contribute to your company having a negative cash flow. So, introducing payment terms will guarantee that you receive payment on time.
Business Accounts
As a legal requirement, limited companies must have a separate business account. Separating your business account from your finances helps manage your overall finances and track both losses and profits.
As you scout through the best business bank accounts for your firm, you need to consider the rate of transaction fees, interest rates, admin features, and availability of customer support.
Cloud Accounting Software
Technology innovation has made it easier for businesses to store volumes of data and also work remotely. With cloud accounting software, you can keep track of your tax payments and accounts as well. You can use some of the open-source software available; however, they do come with limitations.
It would be best to hire an accountant with profound knowledge of operating the software. But, most importantly, the software companies offer your business a 30-day free trial so take advantage of the grace period to determine whether the software is right for your business.
Invest in an Accountant
Technological advancements have made it easier for machines to perform tasks that humans would. However, an accountant is someone with vast knowledge of mathematics and accounting.
When choosing an accountant for your business, you should consider someone with additional skills. For example, you need someone who can help you make financial decisions based on the financial status of your company.
An ideal accountant should devise ways to collect money from customers and communicate your firm’s financial position to investors.
Loan and Equity Financing
Loans can be an effective way for you to grow and expand your business. With the absence of capital, loans and equity financing can provide funds for your firm to invest more in machinery or marketing of your product.
However, it is essential to identify a bank that offers a flexible payment mode and lower interest rates.
Keep a Cash Reserve
Proper money management can help your business stay afloat. However, unforeseen circumstances can lead to situations that require an emergency amount to bail your company out. Therefore, keeping a cash reserve is essential to get your business out of a rut.
Finally, as a small business owner, you should note that experiencing losses is imminent. What matters most is how you will recover from the losses and bounce back to financial viability.
