In most cases, funding is extremely tight when new businesses start, to make sure your startup will survive and make a return on your investment you’ll want to ensure your tiny budget is used as effectively as possible. With this in mind here five ways you can improve your startup’s finances and better manage your limited budget to build a successful business.
Related: How to manage your cash flow
Eliminate unnecessary expenses
The lower your expenses during the early stages of a startup, the more likely you are to survive. This means sticking to the essentials, i.e. this could mean finding the most cost-effective office space (your parents’ house/flat) and spending zero funding on things that aren’t essential to the operation of the business (monitors, adjustable desks and office sculptures).
This will make sure most of your capital is available to be invested into the essential activities that grow the business. Once you’ve started generating revenue, then you can start looking at purchasing the things that aren’t necessarily crucial to the operation of the business but could make things marginally more efficient or make work life more comfortable.
Keep tight cash flow management
Running out of money is one of the main reasons why so many startups fail. Strong cash flow management will make sure you don’t run out of the money at critical times and make your capital last as long as possible.
You should start by understanding everything coming in and going out of your business. This will allow you to properly manage your bank accounts and see where you can reduce expenses and when in the month you’ll need money in the accounts to cover larger expenses. Getting your cash flow under control is critical you don’t want to put yourself in a position where you are running low on funds and need to find money urgently to pay bills or other expenses. You can have the best service or product in the world, but without money, you won’t get very far with it (and without proper cash flow management you won’t have money).
Keeping your financials up-to-date
When you start a new business you need to track every last penny spent, not just for cashflow purposes as mentioned above but because your legally required to. Whether you’re a sole trader or company, you’re required to keep your financial accounts up to date and typically file accounts annual with the HMRC.
To do this, you need to choose accounting software (and payroll software if you have employees) and make sure you understand how to use it and are regularly updating it. Failure to keep track of your finances and properly report can lead to huge financial fines levied by the HMRC and in some cases your business being shut down. You should also find a reliable account in your local area to keep help you keep track of finances and file your end of year accounts.
Set clear financial targets
Setting clear and attainable financial goals is critical to a startups success. Without a clear direction you will struggle to manage your funding well, scale, and more importantly, build a sustainable business model.
Start setting goals by making sure you lay out daily, weekly or monthly revenue and financial goals is a simple way to start ensuring your business is staying on track (where necessary, adjustments can be made to maintain growth). Overall keeping tight financial controls, removing unnecessary expenses, tracking your finances and setting clear goals will put you on the right financial track to building a successful business.