9 Ways To Manage Your Startup’s Financial Health

It’s best to focus on getting your product and gaining traction in your startup’s early stages. But as you grow, keeping an eye on your company’s finances is essential. This way, you can limit expenses and avoid getting into bad debt. Aside from that, it also helps you make informed decisions about hiring new employees or expanding your business.

9 tips for managing your startup’s financial health:

Research Your Funding Needs

The first thing that you should do is research your funding needs. You’ll need information about how much money your company needs to grow over the next few months or years. This will help determine how much funding you should seek from investors or lenders.

For instance, you may learn that financial institutions are lending 50k to one million dollars to startup businesses. However, keep in mind that the conditions of these loans vary from one lender to another. So, it helps to do more research to see which can best fit your financial needs in business.

Prioritize Expenses

Once you’ve researched your funding needs, it’s time to prioritize expenses. You want to ensure that any costs paid for by your business align with its long-term goals and objectives. It’s important to think carefully about whether an expenditure is essential before making it.

Sometimes, you may find that a business expense has benefits. For example, spending money on new equipment or office furniture may be unnecessary if you’re having trouble paying rent or bills. However, if the new equipment can help you increase your revenue, it might be worth considering now instead of waiting until later.

Look For An Accountant

Many entrepreneurs don’t realize they need to hire an accountant or bookkeeper to help them run their businesses. Even if you have a good handle on bookkeeping at home, having someone else look over your books every year is essential. Doing so can help you better understand your expenses and income.

To help you manage your startup’s financial health, having an accountant on your team is crucial. This is because they can provide you with a comprehensive report highlighting all the critical elements of your business’s performance. They can also help you analyze significant financial issues affecting the company’s bottom line.

When looking for an accountant, learn to assess whether or not they have the right experience and expertise for your startup. Ideally, you want an accountant with years of experience working with startups and small businesses. They should also have a good understanding of running a small business efficiently and can provide valuable advice on how to manage finances better.

Create A Financial Plan

Creating a financial plan for your startup can help you determine how much money you need at each growth stage. This plan outlines the current cash position of your company, future income and expenses, and any outstanding liabilities. It also helps to include projections for when you wish to be profitable and how much profit you expect to make in the future.

First, you can use tools like Google Docs or Excel sheets to create a plan for organizing it correctly. Ensure that all expenses are included in this plan and that no item is left out.

Furthermore, classifying each item will help you see how much startup funding is required for each growth stage. You can also use it to estimate how much money you could make from various revenue streams.

Understand Your Cash Flow

Cash flow refers to the net amount of money that enters and leaves your business. Understanding your company’s cash flows can help you manage your finances more efficiently. It can assist you in determining the amount required to pay your bills, salaries, and other expenses.

Meanwhile, it can be challenging to determine if the business is sustainable if you don’t know how much cash comes in or goes out. You can start by tracking each expense and revenue source to understand your cash flow.

This step will give you a total picture of how much cash is coming in and if there are any gaps between the two figures. Once you have a clear picture of your cash flows, it’ll be easier to manage your expenditures effectively.

An excellent way to get a handle on your cash flow is to build a ‘cash flow projection.’ This estimate shows how much cash your business will bring in over a certain period and how much will be spent on expenses, such as payroll or rent payments. Alternatively, you can use financial software to create these projections automatically.

Set Up A Budget

To manage your finances properly, it’s best if you have a projected budget for your business. This means carefully knowing when to spend. Otherwise, it’ll be impossible for you to make any profits.

To set up a budget, sit down with your accountant and decide on the necessary expenses for running the business, such as rent or office supplies. Then calculate the amount of money coming into the business from customers or investors and subtract your expenses from the total amount.

The difference represents your profit. From this profit, you can make projections for your future purchases. Hence, it can help you decide if you can afford new equipment or wait until you can cover its cost.

Open A Company Bank Account

It’s essential to open a company bank account before you start accepting payments from customers. This will help track your expenses and revenues separately from personal funds.

When opening a business bank account, it would be better to get information about online banking and other features that make it easy for you to manage your startup’s finances. You can also open a business credit card account if you need to make large purchases, such as office equipment or furniture.

Manage Taxes Promptly

If you’re not self-employed, you probably have income tax obligations and penalties if you fail to file your taxes on time. These can add up quickly if you ignore them. The good news is that plenty of tools are available online for tracking these things to inform you when they need to be filed. You can also use tax preparation software to automate this task.

Look For A Financial Mentor

Managing your startup business can take time to figure out where to begin. You may be tempted to reach out to an accountant or lawyer specializing in startups. However, they might need more time to help you get started. Alternatively, you can find someone with experience dealing with young companies.

You can look for an established entrepreneur who has been through similar challenges and can advise you before things get out of hand. When looking for a financial mentor, it’s best to seek someone who listens, shares their experiences, and gives honest feedback.

There’s no need to search for an expert in your industry. All you need is someone with expertise in business management and accounting practices. It’s best to have someone who understands how startups work so they can provide context when discussing financial decisions with you and your employees.

Key Takeaway

A well-defined budget lets you know what to expect with your upcoming financial performance. While these steps won’t guarantee monetary success, they can provide more insight into maximizing your budget. Most startups are underfunded and need to consider ways to make their businesses profitable by lowering overhead or increasing profit from an existing product.