Updated: Nov 17, 2021
You have a brilliant idea, products in place to capture the target market. What next? An innovative idea is not enough to ensure a booming business. The success of a business also widely depends on how well the finances are handled. The daunting task of managing the nitty-gritties of financial planning may look excruciating. But letting it slide hurts most entrepreneurs' efforts of running a successful business.
With a little help and perseverance, you can get through with it. This writeup aims at elucidating some points that will help provide a starting point for new budding entrepreneurs for scaling their businesses.
1. Map out your expectations
Entrepreneurs tend to have an uninformed optimism about their new venture. While most may have ambitious expectations, it is important to have realistic revenue expectations. Break down targets in verifiable and measurable targets in a way that can be checked either quarterly or monthly as need be.
2. Prioritize expenses
CEOS of new businesses encounter a variety of needs that require solid expenses on their pockets. You must differentiate between the essential and the optional expenses in an attempt to keep a check on the cash flows. This way, you will be able to deploy expenses in places most necessary. This practice also enables you to identify areas where you spend most of your cash. A few little tweaks to your spending habits will help save a lot of money.
Refrain from overspending on overhead capital. Instead of pumping money into renting a fancy office space, consider the options of co-working spaces, or better yet, Remote working. This will allow you to run your operations on a competitive budget.
3. Maintain accurate record
If it isn’t noted, it never happened. Once you start tracking your expenses, it will slowly turn into an automatic habit.
Claiming everything during the Tax sessions. For doing so, you will need to have a detailed record of all expenses and outgoings to be claimed.
Create a weekly event to review and record all your expenses and flows. Keep a log of everything that is bought for the business. If you buy it from your pockets, you must reimburse yourself and log that in the business expense.
Making a folder to collate these records will help if you have a smaller team. But as your business grows and so does your team, you may need more efficient ways of collating this data.
After recording the numbers each month, you should primarily make 4 reports:
A balance sheet, Accounts payable report, Income statement and accounts receivable aging report
4. Financial literacy
Not all founders have perfect information about business finance. Not everyone may look at the financial reports, and even fewer will understand all of the words in it. And it is okay to admit that. You must read and learn the business jargon and understand the words you see on the pages. This may take a lot of time and effort but will pay off in the long run.
Proactively set up an accounting system to avoid clambering when the operations pick up their pace.
Don’t be ashamed to ask questions and learn!
5. Maintain Financial Stability
As a fledgling business owner, one thing you must always imperatively follow. And that is Always have separate your personal and business accounts. That is to have financial security and a plan for yourself as well as to keep you away from liabilities and debts to your personal accounts.
Take out time to
An entrepreneur should always pay himself the due earnings. VCs see this as a healthy business plan that isn’t compromised in the cash flows.
6. Monitor your Cash Flow
Accounting records that aren’t perfect may lead to discrepancies in understanding and evaluating the cash flows and while filing for taxes. Monitor your debt and savings closely.
Profit does not equal cash flow!
Keeping aside savings for difficult days is a good idea. In these unprecedented times, unforeseen circumstances may require your attention and resources. Having a fund set aside for such times will help save you against a massive blowback.
Poor cash flow management is killing more businesses than ever before. Managing your finances may be a taxing and time-consuming task. You should consider hiring accountants or CFO to manage the finances when you have the means, to give you enough time to work on scaling your business.
Get what you are owed soon. Do not let customers roll over for late payments.
Barry Moltz says: “REVENUE IS VANITY, CASH FLOW IS SANITY”
Your future profitability depends on the positive cash flow that you generate. You need to structure your startups in a way that enables it to scale up and profitably. Investors anticipate the success of businesses based on the forecasts and growth projected over the next few years. Forecasts will also help you measure your adherence to the estimated cash flows and expenses. Forecasts prove to be the yardstick against which you measure your current actions, deduce the corrective actions that need to be taken, get back on track and improve your business plan ultimately.
Rushing your business’s potential will only hurt it in the long run.
Flyboat can help you structure out your financial plan and turn it into a 5-year projection model.
8. Research funding needs
Finally, when the need for funding arises, you must be aware of all the possible options and pre-requisites needed for the same. One vital question you must assess is if your startup actually requires funding.
Ask yourself how much your company really requires. Do you have enough assets to run the company? What could be your valuation? What kind of funding will be required for your startup?
Few possible sources for funding your business would be:
Commercial Loans- short term and long term loans.
Business lines of credit
Read more on: How to get your startup funded.
If this sounds daunting, We suggest you employ the services of a full service finance firm that can handle bookkeeping and accounting at startup friendly prices.
An important pointer that slips one’s mind would be making the right expenses at the right time. For instance, Flyboat suggests firms first get sufficient traction before spending on pitch decks to attract investors. Given that the life of a particular pitch deck is 6-7 months wherein you must get investors interested and continue to show growth, the decision of spending on a deck should be timed correctly.
Your time and money is precious and you should know how to efficiently manage those. Same goes for your business’s financial health. Managing finances from the very first day will ensure success overtime.