How to Effectively Manage Your Startup’s Finances from the Start
Launching a startup is one of the most invigorating things you’ll ever do. There’s nothing quite like taking an idea and nurturing and cultivating it into a full-fledged business. But this excitement can sometimes cause us to overlook some of the less glamorous but equally as important aspects of running a company, specifically expenses and overhead.
And when it comes to managing expenses, it’s much better to be proactive than reactive. Waiting for margins to shrink, or to go into the red, will likely cause you to have to make more cuts than you want, possibly even to income-producing activities, which can really slow down your forward progress.
As a result, it’s smart to think about how to manage your expenses right from the beginning. But this is easier said than done, so to help you, here are some ways to get yourself going in the right direction from the early days of your startup’s life.
Bring in A Professional
Unless you or someone on your team has a strong background in accounting, one of the first things you’ll want to do is bring someone in you can look at the business and give you an honest synopsis of how it’s doing. Working with accounts receivable and accounts payable can be difficult. It might not always be clear to you exactly how much money you have on hand, and this is extremely important to the health of the business.
Whenever possible, try to hire this person on full-time so that they can be as involved as possible with the running of the business. However, when this isn’t possible, hire a consultant. Having someone look at your books and tell you where you’re overspending and where you could be doing better, and who is available to you when you have a question or when a problem arises, is invaluable.
Of course, doing this means incurring an additional expense. But it’s one that’s well worth it, especially since the number one reason small businesses fail is still that of improper cash flow management.
Automate and Outsource Where You Can
Automation and outsourcing are critical to small businesses. This is because it’s much easier to scale when you’ve built your business around these practices, largely because they allow you to increase volume without having to deal with excessive infrastructure costs.
Great examples of this are with IT and customer service. Both require heavy investments in terms of infrastructure, and whenever you grow, this investment will too. However, if you’ve managed to automate and outsource these operations, then you can scale without having to incur a proportional expense. These specialized firms are able to spread costs out across many different clients, meaning they can charge you less for a service that would cost you a fortune to fund on your own.
Furthermore, doing this helps ensure fewer mistakes. For example, automating payroll is a great idea, as it will help ensure there aren’t any issues with taxes or deductions. Humans are known for making errors, and these errors tend to be expensive. So remove this risk from your business wherever possible.
Build a Culture of Optimization
Part of the cost management process is in building systems and processes that are as streamlined and efficient as possible. However, to be able to do this, you need to have every member of your company looking at how you can get better. And this requires a strong culture of innovation and optimization.
One of the best ways to develop this type of culture is to put heavy emphasis on feedback. People should not be afraid to speak up when they see that something is being done less sufficiently than possible, for if they are, then things won’t change.
Start by setting up some teams dedicated to auditing your processes, but also make this a point in nearly everything you do. Spend time during meetings talking about this and soliciting feedback from people. And when someone has a good idea, make sure you do everything you can to implement it. This will help show people they have a voice, which will get everyone thinking about what they can do to help make the company better.
Be Smart and Go Slow
For many startup owners, the dream is to scale quickly. However, this can often end up being a bigger problem than you think. So, unless you have a team of wealthy investors helping you keep up with growth, you may have trouble managing it on your own. As a result, focus on growing slowly and gradually, as this will help you stay on top of your expenses and set your business up for long-term success.
Kevin is the founder and CEO of Vast Bridges, a customer acquisition and lead generation business. His passion is helping entrepreneurs develop and implement a strategic growth vision. And in addition to Vast Bridges, Kevin recently launched Broadband Search, a service focused on helping people find the best value broadband internet in their area.