10 money management tips for startups

September 23, 2016


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Money management is one of the hardest aspects of a young business. Any startup can go through some really difficult times in the beginning.

Having a business plan at hand with all the details of the company written down can barely cope with the real practice of the challenging entrepreneurial job. There are many managerial details and strategies that should be taken care of to ensure a smooth workflow for the whole company.

However, there are 10 mistakes any entrepreneur can fall for in the beginning. These situations can be easily noticed, and we have just the right tips to overcome them.

1. Start small

While the excitement of having a new running business is at a high level, optimism shouldn’t be confused with realism. And the reality is a little grim at the beginning.

The chances are that there will be many financial mistakes and too expensive investments that are common when people adventure themselves in an unknown and exciting territory. It is entirely understandable that the budget won’t be planned perfectly and even respected, so there will be extra payments to cover at the end of the month.

This is why it is recommended not to invest in things that are not really vital for the business itself. Such investments might be the latest tech gadgets or luxurious furniture. Every penny will make the difference between a good money management and unwanted debts.

2. Don’t rely on expensive marketing

It is highly recommended that the startup doesn’t redirect most of its financial resources towards the marketing department.

The reason is simple. Even though there are professional marketing teams in house, the success of the marketing campaigns fluctuates from one product to another. The marketing strategies that worked for one product won’t secure the same ROI for other products.

So, before taking a full leap of faith in the marketing area, the startup can test various strategies. These tests shouldn’t be as expensive as a full marketing campaign. However, even though the investment is low, the results can tell you a lot about how your product can become successful.

After a period of testing and if you are sure that you found the perfect recipe out of several others, then the marketing machine is ready to be activated at its full capacity.

3. Look for investors, even if you don’t need them

While the startup might have a pretty capital ahead, the search for investors shouldn’t be delayed. Even if you are busy with more urgent tasks related to your new startup, an investor may be more important than anything else.

No matter the detailed plans and charts, the future is versatile and cannot be predicted. There is always a chance of miscounting a step that might damage the finances, especially when it comes to startups.

So, there should always be taken measures to avoid drastic times. Moreover, the potential investors will be interested to see the business plan before making a decision. This means that if you appealed to them during a period of high financial issues, they would probably not be interested in your business idea.

4. Track down the expenses

Even though not everyone has the habit of writing down every expense they have, this is a vital step in your money management plan.

Making smarter decisions on how to spend the budget may be not enough. There is no saving effect if the purchases are cheap but frequent. And as much as we’d like to rely on our memory for measuring some aspects of our life, there is nothing wrong with delegating some stressful tasks to the computer.

Thus an Excel sheet can do the trick. Make a habit of updating this sheet as soon as a purchase has been performed. This way, you’ll have a complex picture of how your finances are managed. And you will also be ready when the tax time comes.

5. Eliminate the bleeding spots of your money management

Now that the Excel sheet is up and running, you can analyze each investment and decide if it is on the winning or losing side.

At the end of every month, you can calculate the cash flow based on your financial Excel sheet. Having every payment noted down makes it easy to see where the bleeding of the budget comes from. Then you can decide whether to scratch that investment or not in the future, but the smart decision here might be to discard that for good.

6. Projecting future expenses

Once the startup has a pretty large history of the financial decision, you can streamline the process of money management. Based on the data collected since the beginning of the startup, there is the possibility to decide what investments there are necessary for a whole month in advance.

Another positive effect of this one, beside better time management, is avoiding the unnecessary purchases. There is always the danger of falling for a moment’s whim and open the budget tap for new products that weren’t previously decided. This means that there is no research to support this decision, and the outcome might not be positive.

7. Talk about the budget

Only one opinion can unintentionally skip the bigger picture. Being too involved in the process of money management can shift this aspect from the objective side to the subjective. Then the decisions will not be based on logic, but biased opinions.

This is why it is important to involve other colleagues in the money management. The fate of the financial resources will go through more filters, and the results of the investments might be improved.

8. Prioritize the debts

The opportunities that come with a new investment shouldn’t be postponed in favor for the bad debts. This kind of debts comes in the shape of loans to clients or suppliers, business loans, credit cards and personal loans. These debts should receive immediate payment as a larger amount of them is a sign of bankruptcy.

So, even though the new investment might look promising and with enough return to cover all the debts, the bad debts should still be prioritized.

9. Scale the startup up or down

Times will come when you will have to adapt to the fortune generated by the startup. This period is crucial for the future of the company, so managing this situation requires much attention.

Most of the startups are focused on extending their company upwards, but they overlook the fact that without a solid stone foundation, the body of business can’t be sustained. New strategies are needed when there are changes within the company. A 50 people team won’t be able to grow as easily as a ten members team, so they require customized guidance for their professional team. So, it is important to keep an eye on the evolution of the company as well as on the inside matters.

10. Invest in finance software

There is no need for a high investment in financial software. You can opt for a product with just some basic accounting features. This could be enough for you to forget about managing the receipts.

There are many good choices of finance software on the market. You can even find inexpensive systems to take care of your payroll, tax filings, and bill-paying. These programs can accept even third party applications through which you can keep track of the invoicing or POS system.

All in all, startups should focus more on their money management. The first months of their activity are critical, and they can decide the future of the company. With just such a short time at hand, any miscalculated step can have huge side effects. However, as long as the finances are dealt with precaution and measures based on data, the startups can focus more on their success.

Martin Laird is a financial analyst and partner at Finance27. Always passionate about economics he is now keen on finding the best investment opportunities. Martin’s main goal is to share his knowledge in order to help entrepreneurs make the right investment for their businesses.



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