brGetting a startup off the ground isn’t easy. Instead of focusing solely on your baby, as in the actual product or service that you’re selling, you’ll also have to deal with administrative headaches. Managing your startup finances is one of these necessary evils. Here’s everything you need to know about finances for your startup.
As a business owner, you’re going to have to get involved with the financial side of things. There are no two ways about it. Here’s what you need to know to steer your company’s finances in the right direction.
Manage Your Finances
Entrepreneurs will generally do everything except manage their finances properly. Making money is obviously a major concern and often a big driver in starting the business, but actually taking care of the day to day finances tends to take a backseat. And that’s a recipe for disaster.
Managing your finances should be one of your top priorities. No “We need to focus on our product,” no, “I’m not a money person,” or “We’ll figure out the finer details later.” In short, no excuses. Manage your cash or you’ll go out of business, period.
Your Accountant is Important
I’ve already emphasized that managing your money is super important. Accountancy deserves its own headline, as it’s the crux around which your financial health will be measured. Without it, your paperwork will be a mess, the IRS will start sending you threatening letters, and you won’t have a clue about how much money you really have.
Of course, a startup doesn’t always have the cash reserves to spend money on a fancy (and generally quite expensive) accountant. In the beginning, you’ll be able to do it in-house. You’ll need to brush up on your skills, however, and a course that covers the accountancy essentials should be plenty for Year one, either for yourself or for one of your designated employees. Once your numbers start getting a bit more complicated, hire a pro.
Expensive Credit = Big No No
You’re just starting out, which means you need money. And quickly. Trust me, as a former small business owner, I get it. When banks and credit card companies start sending you leaflets offering you a bunch of money and all you need to do is fill in a form, it’s easy to fall prey to temptation.
I’m going to spell it out with some big letters (just to put some extra emphasis and also to be slightly annoying): NEVER GO FOR EXPENSIVE CREDIT. It’ll (almost always) end in tears. If you’re relying on credit to get your business off the ground, you’ll likely run out of money before you can start paying it back.
Keep Your Expenses Low
Working out of your basement or getting a cool office? Hiring a battalion of employees or working 18-hour days and hiring freelancers? Logo designed by expensive hipsters or something you got off Fiverr?
These are choices you’ll be faced with, and while I’m not saying you should cut corners at every opportunity, keeping costs low, to begin with, are key to survival. You don’t want to burn through your finances in the first few months, nor do you want to get saddled with long-term contracts you can’t get out of. Spend money when you need to, but don’t be frivolous.
Don’t Merge Personal and Business
There’s business, and then there’s personal. They always say you should never mix the two, and ‘they’ are right. When you launch your startup, you’ll need a commercial bank account. For any business expenses, use this account only.
Never, ever, use your personal bank account to cover any expenses. Even if it’s a short bridging loan or a matter of convenience. There are simple reasons for this:
1) You won’t be tempted to make it a regular occurrence and
2) It makes doing your taxes a lot more straightforward.
Know Your Tax Deductions
Tax deductions can seriously lower your expenses. You should know them inside out, or hire an expert who does. You’ll be surprised by the type of things you can include:
- Utilities. You can deduct electricity, gas, cell phones, internet connection, you name it. And yes, you can even claim this stuff if you work out of a home office.
- Travel. If you need to go to a conference or on a business trip far from home, make sure you keep all of the receipts.Fully tax deductible.
- Advertising. Whether you try and get the word out through the Google Ad network, Facebook ads, or traditional snail mail, the costs are fully deductible.
- Business lunches. The government will pay 50% of your business lunches, as long as the expense can be substantiated (just check the small print first).
Aim for Market Rate Pay
Most entrepreneurs won’t give themselves a salary. They’ll work day in, day out, and take a little bit of money when they desperately need it and the company can afford it. It makes sense; you’re just starting off, why waste cash?
The problem with this ethos is that it creates an unsustainable business model and an unworkable financial picture. Long term, it just doesn’t work. You should either pay yourself what your role demands or fit it into your short-term financial plans.
Expect a Rainy Day
You have a fantastic idea. The buzz seems promising. People are buying what you’re selling. It’s all looking good. Until it doesn’t. No matter how good you are at your job or how rosy things look, there’s almost always a bump in the road somewhere.
Budget for a rainy day. Keep a buffer for the times when cash flow isn’t good. Retain quality employees even if you’re going through a rough couple of months. Keep your doors open while you weather the storm. Having a rainy day fund will get you out of the tough spots, so make sure you build a decent one.
Even If You Know Everything, It’s Still Hard!
Startups are exciting, liberating, and have the promise to give you professional satisfaction and making you (potentially) millions of dollars. On the flip side, running a business isn’t a cakewalk.
Even if you know everything there is to know about startup finance, it’s not going to be an easy ride. With that in mind, equip yourself to deal with those difficult days. Keep learning about the dollar side of things as often as time allows. And don’t be afraid to call in the experts when you need to.