Managing finances is a critical aspect of running a business, but it’s especially important for early-stage startups.
When you’re just starting out and trying to get your business off the ground, you can’t afford to make mistakes. So, it’s essential that you have a solid grasp on your finances from the very beginning.
Good finance management is what will keep you afloat when things are looking bad and help you grow when times are good. Without it, the chances of your startup surviving long enough to become successful are slim indeed.
Hire Financial Advisors/Experts
As an early-stage startup, you can’t afford to hire a full-time CFO. You need someone who can help you manage your finances but not take up any of your limited time.
That’s where financial advisors come in. They’re experts in the field, and they know exactly what you need to do to make sure your startup is on track with its finances. A financial advisor is a great fit for early-stage startups, these professionals have a degree in business management or finance management, so they’re well versed in helping you make smart decisions with your finances.
They can handle everything from tax preparation and bookkeeping to forecasting revenue and projecting cash flow—and they’ll do it without taking up much of your time or resources.
It’s important to remember that managing your company’s finances is part of managing its day-to-day operations. If you don’t keep an eye on things like revenue, profitability, debt financing, etc., then it’s easy for things to get out of hand quickly. This is why having a finance advisor around for those early years is so important.
Monitor And Manage Cash Flow
Cash flow is the lifeblood of any business, and it’s especially important for early-stage startups. Without the ability to manage cash flow, you risk running out of money before you even get started.
The first thing you have to do is monitor your cash flow. This means keeping track of how much money you have coming in and going out each month. You can use a simple spreadsheet or various free accounting software available Online.
Next, you’ll want to manage your cash flow by making sure that the money coming in covers the money going out. If this isn’t happening, then you’ll need to find ways to increase your revenue or cut down on expenses. As a general rule, you should try to keep at least three months’ worth of operating expenses in the bank at all times.
Most early-stage startups use venture capital because they don’t have enough revenue yet to fund themselves completely on their own, but even if you’re not using venture capital yet, it’s important for any business owner—early stage or not—to know how much money they have coming in and going out each month so they can make smart financial decisions for their company’s future.
These days, many software are available in the market that can help you monitor and manage cash flows. You can use such financial planning software to make sense of the unorganized information and get the desired analytical output for better financial planning. In fact, the market for financial planning software is so massive that it is expected to reach $16.9 billion by 2031.
Minimize Unnecessary Spending
As an early-stage startup, you have to prioritize your expenses while maintaining a healthy budget. You have to forge solid strategies to bring down the expenses of your startup. You cannot afford to spend money on everything that comes your way, as it will only be a waste of time and resources.
Instead, identify the most important aspects of your business and focus on those instead of unnecessary spending. For example, if you are planning to hire new employees, make sure they are the right fit for your company culture.
Similarly, in case you need new office space, make sure it has all the necessary amenities and facilities required by your employees.
Once you have identified these areas where you need to spend money wisely, do not hesitate to do so but instead prioritize them over everything else.
According to The Hartford, a leading investment and insurance company based in the U.S., balancing finances is the key to avoiding unnecessary debts in the future. They further suggest the importance of research to make better decisions, thus avoiding unnecessary debt.
Set Up an Emergency Fund
When you’re a startup, cash is the lifeblood of your business. It pays for rent, food, and all the other little expenses that keep your business going. So, when you have to spend it on something unexpected—like a new server or an unexpected server repair—you need to be prepared to deal with it.
That’s why we think it’s important that early-stage startups set up an emergency fund. An emergency fund is just what it sounds like: a pool of money that you can use when unexpected expenses come up. You might also call this pool of money an “operating fund” or an “overhead fund.”
Having an emergency fund will help you manage cash flow during the cash burn so that you don’t have to worry about scrambling for money at the last minute.
When you’re just starting out, it’s important to make sure you have a solid financial strategy in place. You should also think about how your business’s finances will evolve over time—and how they’ll adapt to the changing needs of your company.