29 percent of startups fold because they ran out of dough. It’s the second most common reason for startups’ failure, as CB Insights‘ research found out. Whereas the most common cause, for 42% of companies, was that the products they were building just didn’t click with the market. So if you want to cover your bases and maximize your startup’s chances for success, be sure your startup budgets game is on point. Your sales might be skyrocketing, your product might be the best thing since sliced bread, but if you haven’t balanced your budget and you are spending money in the wrong place, you might be bound for some trouble.
Better get your finances right. Here are must-have finance advice for entrepreneurs handling startup budgets:
Balance Your Books
Know your cash flow, keep track of how much you make in sales and how it lines up with your expenses. Know how much revenue will actually reach your account. Tracking how much money flows in and out of your business is essential.
Fixed costs, payment terms, billing schedules, these all affect your cash flow. So learn how to manage these and anticipate periods where money gets tight. Yes, this seems fairly obvious but if you don’t stay on top of this then the effects will be profound. Everything from hiring to product development to your customer payment terms will be affected.
By thoroughly analyzing your cash flow over the course of months, you’ll have the basis to plan out your business’ long-term operations. You’ll have the data needed to gauge your startup’s scalability. And this knowledge is essential in building the strong financial foundation your company needs to succeed.
Minimizing Fixed Expenses
Consider going Marie Kondo on your fixed costs. What do you spend a lot on but get relatively little in return? This is the kind of minimalism any business-minded person can go with. So while a well-decorated office with all the amenities gives off positive vibes and conveys success, you can hold out on some of the perks like the gaming room or billiard tables.
If you’re really on a budget, then instead of renting an office consider going for co-working spaces or remote work options. Instead of a larger permanent workforce, you can trim it down to the core group while hiring freelancers or outsourcing. For example, with a Virtual Assistant you can get the expertise of an in-house professional but for the fraction of the cost. When it comes to equipment, do you really need the latest blinged out Apple laptop or can you do just as well with your current one?
Lean operations can be flexible, and the savings you make can be reinvested into growth opportunities or set aside for future expenses.
Recognize Necessary and Smart Expenses
Likewise, it’s important to find out which expenses are worthwhile and have strong ROI.
For example, for businesses that make extensive use of marketing, the benefits they reap from quality branding, ad campaigns, packaging and such can really increase their value.
So figure out what your customers value, how much you spend on it, and see if you can double down on it. Optimize your startup budgets!
Hire a Professional
A dedicated financial professional to handle these budgets balancing task. Even the most seasoned entrepreneur’s eyes will glaze over when the discussion delves into startup budgets, balance sheets and more. So consult with an accountant or bookkeeper. It will be more cost-effective than trying to handle your accounts on your own. Not only will they be able to handle the role much better (they’re the pros, after all), you can free yourself to handle much more important tasks.
Don’t have the budget to hire in-house accountants or bookkeepers? A Virtual Assistant specialized in accounting and bookkeeping may be what you need.
Calculating taxes, monitoring cash flow, etc., these roles require education and experience. So ask your prospective bean-counter about their experience with entrepreneurs and startups. It’s best if they have prior experiences and know-how in the rough and tumble startup scene that’s full of unpredictability. That’s where managing tight budgets and lean operations are the order of the day.
Value Your Time
What’s the best use of your time? What’s the ROI for this task or activity? Maximize your productivity and your ROI by handling roles that’s worthy of your time. Try computing your “hourly rate” based on the worth of your skills and the revenue you generate from an hour’s work.
With this knowledge, you can save yourself from being bogged down in tasks that are beneath your pay-grade. And you can decide which roles are suited for delegation. You can prioritize high-value tasks while assigning the rest to your employees or Virtual Assistant.
So go network, meet new clients or make pitches to investors while your VA handles your appointments and social media accounts.