If you haven’t addressed your financials lately, it’s a good time to tackle the following steps — they’ll help secure your company’s future By Matt Wool on July 18, 2018. Originally published on Startups.co– the world’s largest startup platform, helping over one million startup companies. More from Startups. TL;DR: You can be the person forming great ideas that make money, […] The post Do you know where your money is? 3 tips to get your startup’s finances in order appeared first on e27.
19 Jul, 2018E27.CO
TL;DR: You can be the person forming great ideas that make money, but you don’t have to be the person to manage it. At the very least, ensure there’s someone — or some system — in place that can accurately keep track of it all.
Most startups don’t fail because they lose money. The downward spiral starts much sooner when entrepreneurs let managing their financials fall by the wayside. In fact, a CB 2018 Insights report found that 29 per cent of small businesses failed because they ran out of cash, perhaps a result of poor money management by leadership.
Not everyone has the aptitude for financial management. Still, startup owners agree it’s a necessity.
Over the years, my company has seen a pattern with startups: Just as they hit their stride and growth takes off, they begin struggling with financials. There are many reasons for this paradox, including expanding into new verticals too quickly and failing to acknowledge the financial complexity that comes with a booming business.
Hitting a certain level of growth can be like plunging into Class IV rapids, according to Les McKeown in Predictable Success. You’ve moved your startup out of the garage — now the waves of processes and procedures are crashing around you. The nuances and intricacies of your finances can often be the most treacherous. This is, unsurprisingly, the stage where startups sink.
Even a part-time chief financial officer or operations person could make a world of difference. At the very least, get an expert to look at your books. You can find a trusted certified public accounting firm or advisor to assist every month and help ensure your books are kept correctly. They can even guide you through the financial rapids if they start getting out of hand.
A leader with too many responsibilities — or who may have only a rudimentary understanding of basic accounting — cannot properly manage the finances of a growth-stage company. Further, if the numbers and the reports aren’t right, it’s almost impossible for leaders to make informed decisions about any aspect of their business.
While there’s no one solution that guarantees profits, failing to properly manage finances is a surefire way to sabotage success.
If you haven’t addressed your financials lately, it’s a good time to tackle the following steps — they’ll help secure your company’s future:
1. Process your process
Do you have a firm enough grasp of your financial process so you can clearly explain to another person who’s not a financial expert? If you don’t have a financial system at all (or it sounds convoluted when you actually put it in words), that’s a problem. Without a streamlined approach to keeping track of expenditures, income, wages, investments, and more, your company runs the risk of defaulting on its financial obligations.
And it’s something business leaders generally believe in and need. In fact, according to Score’s “The Megaphone Of Main Street: Report on America’s Small Businesses,” 27 per cent of entrepreneurs surveyed said seeking financial services was crucial to their business’ success.
While it’s easy for founders to keep everything in their heads when the business is small, this approach doesn’t scale. Growth without a dedicated support system to manage terms, contracts, and invoices is like trying to balance a watermelon on a popsicle stick.
2. Think about yourself
As the company founder, you get to decide how involved you want to be in your company’s finances. If you are inclined to oversee this aspect of your business, it’s important to be realistic about your level of knowledge. For example, if it’s in the best interest of your company to switch from cash accounting to accrual accounting, are you confident about how to oversee two sets of books or forecast cash profits versus accrual profits?
Many entrepreneurs choose to hire an experienced financial professional to handle that part of the business. Bottom line: You have the power to say you don’t want sole financial responsibility.
3. Create checks and balances
Once the right people are in place, double-back to your process. To scale your business, have a solid financial operation in place: The earlier you can institute dual checks that create redundancies and safeguards, the better you’ll be.
It’s always a good idea to have at least two people look at any check worth more than US$500 as well as require dual approval on any large payment. Expenses should get similar treatment. Acceleration Partners does this at the end of every month: Two people review each client invoice and check against QuickBooks for discrepancies. And this safeguard doesn’t rely on any special technology; it’s just a matter of having a firm process and sticking to it.
You can be the person forming great ideas that make money, but you don’t have to be the person to manage it. At the very least, ensure there’s someone — or some system — in place that can accurately keep track of it all.
The article Do You Know Where Your Money Is? 3 Tips to Get Your Startup’s Finances in Order first appeared on Startups.co
The post Do you know where your money is? 3 tips to get your startup’s finances in order appeared first on e27.