Nothing’s harder than starting a company from the ground up. Unfortunately, most startups fail because they simply ran out of cash. Here are five tips to keep your finances in check during those early stages.
1. Secure proper funding
Having enough funds is one of the initial hurdles you will face as a startup owner. Fortunately, there are several ways you can obtain them
Applying for a personal bank loan is a proven strategy for many entrepreneurs. Having a good relationship with your local bank can increase your chance of getting your loan approved on the first try. Some businesses, on the other hand, seek partnerships where partners may contribute ideas and share in the liabilities and profits accordingly.
You can also explore government initiatives such as the Paycheck Protection Program. Implemented by the Small Business Administration and the Department of the Treasury, this initiative helps small businesses maintain their payroll and support job retention.
Most investors and lenders will focus on what’s in it for them when they invest in your venture. That’s why it’s important that you prepare a detailed business plan containing realistic target goals and financial projections. The business plan should also contain a detailed analysis of your branding, target customers and organizational structure. You can also tackle the loopholes in your competitors’ processes that you aim to take advantage of.
2. Establish an accounts payable system
Maximizing cash flow can be incredibly challenging for young businesses. There are several tracking systems that can help you monitor your expenses and lay out your budget accordingly. An accounts payable system can also assist you in establishing an invoice schedule, ensuring you’re paying your bills on time. Consulting a professional can help you evaluate your needs and figure out the best system for you.
3. Set up a receivable collection process
A structured payment collection process helps you track all balances and invoices. It also assigns accountability for both you and your customers. Your collection approach should include your credit guidelines, follow-up protocols, and overdue balances. When done right, a collection process can improve your cash flow and lowers the risks of incurring losses. This means more funds for marketing efforts and product development.
An organized payment process can also improve your customer service and retention. For example, knowing which customers make early payments can help you establish an incentive system.
4. Plot your financial projections
A financial forecast can give you a solid grasp of your finances. Use your detailed budget and revenue projections as your entry point. Your forecast should highlight necessary expenses including office rental, media spend, legal services, tech tools, and miscellaneous expenses per department.
For established businesses, financial projections are usually designed for the next 5 years, with monthly figures shown for at least the first 12 months. For startups, a 12-month to 3-year projection can provide sufficient insight. Make sure to update your forecasts on a monthly basis or when there are major changes in your market or business model.
Starting your own business is always an exciting albeit difficult journey. It does require hard work and a certain dose of creativity, but what really matters is your attitude and will. That and effective financial management in place.