Are you starting your own business? You’re likely juggling a lot—finding the right team, attracting customers, and connecting with investors. But have you considered your business’s internal financial foundation amidst the hustle? Without a strong financial base, your startup might struggle to thrive long-term and sustain everyone you bring.
Managing finances is one of the trickiest parts of being a business owner. According to CB Insights, 38% of startups fail due to running out of cash or being unable to raise enough capital. The good news? You’re not alone, and there are steps you can take. Luckily, we’ve rounded up 7 key financial management tips to help your startup succeed and grow. Let’s look into them.
Tips for financial startup success
Tip #1: Keep your personal and business finances separate
A prominent mistake entrepreneurs make is mixing their finances with their startup finances for convenience. At first, having one place to look at all your spending and earnings may sound great. But this approach makes tracking your business’s overall performance harder in the grand scheme of things. It also complicates money management as more items are purchased.
Having separate accounts gives you accurate records of what’s spent and earned. You’ll also be able to simplify tax reporting, avoid issues in fundraising, and have a clear picture of what’s coming in and out of your business. Separate accounts protect you from personal liability, and if your company goes through legal issues, your personal assets are far from being a part of it.
Tip #2: Track what’s coming in and out of your startup
As a business owner, you’ll experience cash flow, which is where money comes in and money comes out. The best way to track this is through metrics. Having more money in means increasing metrics like your ‘average revenue per account’ (ARPA), which indicates how much revenue you’re generating per customer, as well as the ‘lifetime customer value’ (LCV), which is the customer’s value over their entire relationship with the startup.
Having more money out, and in the negatives, refers to higher costs, especially for acquiring new customers. This includes your customer acquisition cost (CAC), a metric overseeing the expenses related to marketing, sales, and onboarding for each new customer.
If you fail to manage your cash flow, there is a high chance your business will dip too far into the negatives, with too much money coming out compared to what’s coming in. Therefore, implementing some sort of cash flow management and forecasting plan can alleviate this issue. By adding up how much you’ve earned and spent month-to-month in the past, you’ll be able to predict how it can be saved or spent in the future.
Understand clearly when you get paid and when you must pay for other expenses. It’s vital that when you’re tight for money, you only pay essential expenses. If something is optional, it’s good to reconsider if it’s necessary or not. To help with this, set manageable income objectives that you can work towards.
Tip #3: Have enough funds (or more!) to stay afloat
When raising money, it’s wise to start by bootstrapping—using your savings or seeking support from trusted sources like family and friends. Once those resources are tapped out, you can explore opportunities like pitch events to connect with investors who may back your venture. A solid financial cushion is essential to navigate the ever-changing industry landscape and cover ongoing expenses.
Tip #4: Separate your income into categories
To build a strong financial foundation, categorise your income and expenses into groups like labour and supply costs, monthly rent payments, and long-term savings. This approach gives you a clear picture of your finances and ensures you’re better prepared to handle challenges. With more money in reserve, you’ll be in a stronger position to tackle any financial hurdles that come your way.
A smart idea is to have an emergency fund available. Every time you get paid, make it a goal to deposit cash into this emergency fund, which will serve you well when something comes up since you won’t have to dip into another account. Instead, you’ll have a pool of money to pull from.
Tip #5: Use accounting software
Avoid the chaos of piling paperwork and unpaid bills. While an Excel sheet might work when you’re just starting, upgrading to an accounting system as your business grows will save time and streamline your processes. Accounting software allows you to track expenses, manage expenditures, and even sync details directly to your bank account, storing all the financial information you need in one place.
Plenty of resources are available: Quickbooks, Xero, Stripe, Square, and many more!
If online platforms aren’t for you, you can hire a bookkeeper or accountant to manage your financial records. No matter how you go, just ensure you are reporting your records correctly so you don’t experience financial losses or increase your chances of late tax filing.
Tip #6: Avoid unnecessary spending
This may sound obvious, but sometimes it’s easier said than done – avoid unnecessary spending. Every penny counts in the entrepreneurial world, especially when starting out. Cutting costs down will be beneficial when investment opportunities arise, so you have the funds to capitalise on.
So, as you go about starting your business, ask yourself what’s essential and what’s not. Where are you spending money that you can cut down on? Think about the necessary business needs and put those first. Take time to oversee your expenses and keep records of when you are using cash vs. card. With a clear awareness, it will be easier to cut down on unnecessary costs.
Tip #7: Offer employees stock options
Consider incorporating stock options into your employee compensation packages. Stock options are a financial incentive that gives holders the right (but not the obligation) to buy or sell a company’s stock at a predetermined price (called the exercise or strike price) within a set time frame.
Startups typically allocate 10-15% of their total shares to a stock option pool drawn from the founder’s equity rather than the investor’s. However, founders should be mindful that expanding this pool in the future to issue more options will dilute their ownership stake in the company.
Start managing your finances strategically today
And there you have the top 7 tips for being financially savvy as an entrepreneur in the startup space. If you use these tips, you’ll be more than likely to build a stable financial foundation for your company. Remember, every step now will lead you closer to success as a business in the future.
Here at Haven Workspaces, we aim to support our innovators, entrepreneurs, and business owners throughout their journeys. Whether it’s in finance, internal management, or communications, we are here to help businesses set up their organisations in an environment that is curated to help them thrive.
To learn more about our business options, check out our membership options here.
