Starting a business is never easy. It takes careful planning, patience and more importantly, capital. While creative ideas and determination are vital in becoming an entrepreneur, the success of a business lies primarily in being able to manage finances well.
Many startups these days have closed shop owing to financial problems. Some lasted only for several months while the others were good only for a year or two.
Managing finances does not require a standard formula. It depends on a startup’s situation and the profit it is gaining as the years go by. Experts even agree that it is not as complex as aspiring entrepreneurs often believe.
Separate Personal from Business Finances
Your personal funds should be kept separate from your business finances. This is an effective method that will help you monitor the money meant only for your business operation. You can use the online QuickBooks accounting software for this purpose. For a start, though, the Excel spreadsheet is a simple and easy to use tool you can use.
Track Your Expenses
Similar to managing your personal funds, you also need to keep track of your expenses on a daily basis. Save all your receipts and store them in one place. This way, you can still check them when it’s time to review where your money went. Discipline is highly important when monitoring your startup’s financial activities.
It would be ideal as well to set a monthly budget and review it regularly. Then make a forecast of your income in the months ahead as you are finding ways to reach your financial goals. The Mint app is a free tool that can act as your personal assistant in managing your finances particularly if you’re a solopreneur.
Manage Cash Flow
Cash flow can be divided into the inflow and outflow. The cash inflow pertains to the amount of money you collect, the time you collect it and the people from whom you collect it. The cash outflow, on the other hand, refers to the amount spent, the purpose of that expenses and to whom the money was paid for.
While you’re keeping track of these two, you need to save copies of all invoices you have sent and received. When the time comes that you will hire an accountant, these documents will be essential in preparing your taxes and other financial statements.
“Incompetence in handling finances is among the top causes of business failure involving startups. When this happens, a company may end up closing shop or worse, filing for bankruptcy. This is similar to homeowners who fail to fully pay their properties that end up being repossessed by lending firms,” according to Simon Resnik, a lawyer who specializes in foreclosure in Los Angeles.
An accountant will be able to help you with the financial management aspect of your business once you are gaining profits. If you’re not the type of entrepreneur who does not want to take control of your funds, this professional is the first person that you should hire. Having a third party to help you with finances will also allow you to have an unbiased view of the monetary part of your startup.
When searching for an accountant, make sure that this person will not only do bookkeeping but will also perform other related tasks. These should include informing you honestly of your company’s current cash position, strategies for collecting cash from clients faster than usual and identifying financial metrics. In other words, he or she has to be a partner in your business.