Starting a new business is an exciting undertaking. But it can also feel overwhelming, especially when it comes to finances. Yet, many startup businesses fail because they don’t have a good handle on their finances from the start.
These 25 financial tips can help ensure your start-up business stays on track financially and is positioned to thrive.
1. Set financial goals. Entrepreneurs often focus much of their time and energy nurturing their new product or service idea, with finances falling further down the priority list. Take time to develop short-term and long-term financial goals that you can track progress against.
2. Develop revenue targets. When can you expect to start monetizing your idea? Establish revenue projections that are both realistic and ambitious, then revisit them quarterly or as your situation evolves. Financial models can help you tackle this important task.
3. Estimate your expenses. Map out all of your essential and optional expenses, as well as your fixed and variable expenses.
4. Limit your expenses early on. Think twice before committing to a lot of overhead. Outsourcing non-core functions, like accounting*, is one way to keep your overhead low.
5. Create an annual budget. Just like a household budget, a business budget helps you make informed decisions about the best use of your capital. A budget also enables you to track how you’re performing against your plan and course-correct as needed.
6. Build in contingencies. You’ve likely heard the phrase, “Hope for the best, but plan for the worst.” By including contingencies in your budget, you’ll be prepared to weather slow periods or unexpected expenses.
7. Assess your capital needs. Many businesses are funded solely from the owner’s savings, which can prove limiting. Consider whether the type of business you’re establishing needs more capital than you can provide on your own.
8. Spend smart. Prioritize your spending on efforts that will generate revenue, fuel growth, or free up your time to spend on profitable pursuits.
9. Invest in acquiring customers. You can’t generate revenue without customers. So while you’ll want to minimize your operating costs at the beginning, strategic marketing that’s designed to acquire customers is a necessary and worthwhile expense.
10. Understand your income tax liability. Even if your initial staff is quite small, falling behind on your income taxes will prove costly. Know your local tax laws, use tax software to calculate what you owe, and reserve the cash needed to pay those taxes on time.
11. Understand your sales tax liability. If you sell a product or service that requires you to collect and pay sales tax, stay current on the laws and tax rates in your area. Be sure you know how to calculate sales tax accurately and always pay it on time.
12. Keep separate business accounts. Open a separate business checking account and credit card, right out of the gate. Co-mingling business and personal funds makes for difficult recordkeeping and proves problematic in the event of a tax audit.
13. Be diligent about recordkeeping. Keep good track of customer invoices, supplier invoices, receipts for deductible expenses, and other financial records. The more organized you are about your records, the more informed you’ll be about your financial situation.
14. Invest in accounting* software. A good software program can make financial recordkeeping easy and efficient. Look for cloud-based accounting* software designed for small businesses.
15. Manage your cash flow. Cash is the lifeblood of any business—and a lack of cash is one of the most common reasons that businesses fail. The best idea in the world won’t succeed unless it’s backed with sufficient cash.
16. Establish good billing terms. For example, if you work on long-term projects, structure your contracts so you’re receiving payments at pre-established milestones.
17. Stay on top of accounts receivable. To keep cash coming in, always invoice your customers in a timely way and follow up as soon as an invoice is past due.
18. Incentivize customers to pay early. Consider offering a small discount for early payment, to get cash in the door sooner.
19. Negotiate accounts payable terms. Talk to your primary suppliers to determine the most favorable terms they can offer. A supplier may be flexible—but you won’t know unless you ask.
20. Keep an emergency fund. Whether your business is wholly owner-financed or backed by investor or bank financing, always keep cash in reserve in case it takes longer than you expect to generate revenue or if you find your customers are slow to pay.
21. Maintain good credit. If you make purchases on a credit card, try to pay the balance in full monthly. If you take a loan or line of credit, ensure you have the cash flow to make timely payments. Good credit gives you more options to take advantage of growth opportunities.
22. Pay yourself. You may be tempted not to take a salary in the early days, but it won’t work long term. It’s better to plan on paying yourself a salary, even if it’s modest to start out.
23. Determine if you qualify for tax credits. If you have R&D expenses, you may be able to deduct them against your payroll taxes if your revenue doesn’t exceed certain limits. Some of your startup expenses may be tax deductible, too.
24. Consult with an accountant. An accountant can provide guidance that is especially helpful early on—from determining the best business structure, to helping you set up good recordkeeping systems and advising you on tax issues.
25. Determine how to staff for accounting*. During start-up mode you may find it more cost-effective to outsource the accounting* function rather than take on an employee. To determine whether you’re most in need of a bookkeeper vs an accountant at this stage.
Getting a good handle on your finances in the early days of your young company is critical to success. Scrubbed regularly works with new businesses, providing outsourced accounting* services that help you balance the need to keep your overhead low with the need to manage your finances effectively. Contact Scrubbed at [email protected] or 800-837-5160 to learn more about our comprehensive suite of financial services and cost-effective outsourced model.