One of the greatest problems startups face is the lack of funds. According to some recent studies, 82% of small businesses experience issues with cash flow. In order to prevent such problems on time, you should invest in a detailed financial planning strategy. What you need to know is that budget management is not about saving money only. On the contrary, it’s about managing available resources wisely.
Here are several techniques that will help you do so successfully.
For many entrepreneurs, personal savings are usually not enough to launch their business and stay competitive. They get an additional financial boost, many startups turn to bank loans. However, you need to know that both applying for a bank loan and getting it is a tedious task. Not to mention that it takes at least a few weeks for banks to process your application and inform you whether you are approved or not. To avoid all this, you could turn to some simpler funding options. For instance, you could go with equity funding, start selling invoices, or apply for fast loans.
You need to keep in mind that, once you start your business, expenses will be coming at you from various directions. And, in order to handle this situation properly, you need to stay on top of your cash flow. Unsurprisingly, this means managing tens of thousands of bills, receipts, taxes, and invoices. Now, hiring an accountant may sound like a perfect solution to this problem, but it’s not a very budget-friendly option for your cash-strapped startup, right?
This is exactly when cloud-based accounting software shines. These highly sophisticated and yet pretty affordable options, like FreshBooks, Xero, QuickBooks, and Kashoo will do all the hard work for you, as well as help you access, monitor, and manage your accounting data. Any good accounting platform will also give you an invaluable insight into:
A balance sheet that tells you how well you organize your assets and liabilities. It lets you see your long-term and short-term debt, as well as shows you what sorts of assets your company owns and how these assets are funded.
An income statement, also called the profit and loss statement, gives you an insight into your business’ performance and operations for a given accounting period. It covers a plethora of factors, such as net income, profit margins, sales, and revenue.
A cash flow statement helps you keep track of the money flowing in and out of your company. It represents a combination of a balance sheet and an income statement and, as such, it is the most notable financial statement.
Many startups make a common mistake of spending their money on huge offices in the heart of the city, fancy furniture, and the latest IT solutions. What they forget is that generating revenue is what they should really care about. This is why they usually fail. Let’s face it. In the initial stages of your company, you don’t need any of the things mentioned above. This is why you need to make rational decisions and keeping your unnecessary expenses low. By constantly striving to stay on budget, you will be able to allocate most of your capital to more important things, such as salaries, taxes, and your business growth, which should be your top priority.
When starting a company of our dreams, we all dream big. However, regardless of how perfectly this all may play out in your head, if your ideas are not profitable enough, you should give up on them. The first step you need to make is set realistic and easily achievable goals. Only by scaling down your ideas will you be able to make data-oriented decisions, allocate your resources in a logical and organized way and, most importantly, help your business stay afloat. Otherwise, unrealistically high expectations might backfire on you. For instance, you might find yourself spending huge sums of cash on irrelevant stuff, without getting anything in return.
To boost your budget, you need to sell your products. And, to do so, you need to have an extensive customer base. To acquire new customers and retain the existing ones, you need to market to them to a wide range of acquisition channels. For starters, you should go with the most popular and reliable acquisition channels. Once you scale them effectively, you will have the opportunity to explore some other, less relevant channels, as well.
We live in the era of hyperconnectivity. Today, effective collaboration means moving massive files to cloud storage software, organizing workflow and employees across different collaboration platforms, and communicating in real-time via instant messaging (IM) tools. Most importantly, your employees can access data and share their ideas with the rest of the team instantly, regardless of their location. Parallel with these really amazing changes, many businesses have resorted to untraditional types of working arrangements, such as work-from-home programs. Namely, by outsourcing your workflow to highly experienced people from all across the globe, you will manage to build diverse teams, minimize your costs, and maximize your budget. Studies support this statement, pointing out that remote working programs help businesses save on up to $11,000 a year.
Monitoring and managing your startup’s finances is an extremely time-consuming and nerve-wracking task. However, this shouldn’t discourage you. With the help of the practices listed above, you will manage to grow your business and nudge it in the right direction.