Some entrepreneurs try to actualize their dreams before considering every single detail of an operation. As a result, their rosy business vision can easily turn into a cold, hard reality met with cashflow problems and lenders knocking at the door, demanding repayment.
The towering number of failed startup statistics is scary, but the ones that survive inspire us to become the next success story—and you can be.
If you’ve recently launched a startup or you have a few ideas up your sleeve, your entire future will depend on how carefully you manage your finances. Balancing the books is no easy task, but before you hire an accountant, why not implement these five financial management strategies to get a better grip on your business bank account – moreover, you can even use these strategies when comparing a few different bookkeeping packages before making any major decisions to ensure that you get the best bookkeeping pricing deal for your financial needs.
1. Acquire Funding
It’s pretty unlikely that you’ll have enough capital on hand to be the sole investor of your startup, but even if you did, pouring all of your personal cash into the business can be a pretty bold, risky move. Depending on the business structure you set up, if it tanks and files for bankruptcy, you might find yourself broke, too.
In most cases, you’ll need to seek a source of funding outside of friends and family. There are traditional small business loans, as well as angel investors and venture capitalists who may be able to get you off the ground and running, But as you compare loans with equity-based funding, keep your long-term goals in your line of sight—rather than gunning for a quick fix and winding up with steep interest rates you can’t keep up with.
2. Purchase Permits
Are you positive your company name hasn’t been trademarked elsewhere? Did you buy a domain? Are there health inspections you need to pass before you can open, and did you purchase a business permit?
All this red tape can be a big obstacle between you and your startup’s opening day, but cutting corners can cost you thousands of dollars in fees down the road, should the city find that you’re in code violation or conducting business illegally.
You might want to speak with an attorney who can make sure everything is squared away and you get started on the right foot.
3. Monitor Inventory
Inventory will obviously depend on the industry you’re entering; a wealth planning practice or creative agency won’t require stock like a clothing store or ecommerce site would. But even entrepreneurs hedging their way into a white-collar world should be mindful of the spread of services they offer.
Similar to a restaurant that offers everything on the menu, but isn’t really great at any dish, it might be in your interest to hone your marketing efforts on a few select offerings. This will help you gauge your price points and establish a target audience. Once you establish a niche service, then you can expand or upsell packages as you grow.
If you do carry stock, an inventory software system can track quantities so that the products you sell in high-volume stay consistently stocked, while also preventing products that don’t move as fast from collecting dust on the shelves.
4. Maintain Ledgers
The number one rule in Finance 101 is to document all expenses going out and all revenue coming in. From a customer transaction to the purchase of equipment, diligently record all accounts payable and receivable.
Gone are the days of hand-written ledgers and piles of paperwork. Not only are they physically messy, leading to misplaced invoices and overflowing filing cabinets, but manual errors and illegible handwriting can pose serious business problems if they trigger a chain of mistakes. If you don’t want to hire an accountant, invest in bookkeeping software at a minimum.
5. Find Tax Breaks
Another reason you might consider outside assistance is because a certified professional will be far more informed about various tax breaks your startup may qualify for, thereby saving you thousands of dollars on your annual return that you can reinvest in the business or set aside for a rainy day.
Keep in mind, although businesses file annual returns to report their revenue and losses for the fiscal year, it’ll be tax season all-year round at your startup. In most cases, you’ll be required to pay estimated quarterly taxes to the IRS—and can incur heavy fines for failing to keep up with your obligations.
These are the basics to managing business financials, but as your startup grows and the company becomes increasingly complex, you’ll find that finances become much more involved.