When you launch your startup in an industry you’re passionate about, money isn’t always your only priority. But be honest — it is still a significant motivator for what you do. It’s on the back of your company’s finances that you can grow as a startup. Without cash, how can it evolve into that reckoning force you know it can be within the industry? For your company to reach its full potential, you have to be curious and willing to learn everything there is about your startup’s finances. Only then will you achieve exponential growth and, perhaps, one day be acquired. Whatever it is you do, start by scrolling down and see what four things you should know about your finances.
- Keep your business and personal finances separate.
When you first start out, this lesson can be a challenge to learn. You eat, sleep, and breathe your enterprise. Then you do it all again the next day and the next. All your extra focus is going towards your startup’s operations. You may have even used personal savings to get your startup off the ground. When it means this much to you, the lines between personal and professional can start to blur.
Once that happens, you won’t think twice about using your personal emergency fund to cover unexpected business costs, draining it to cover staffing costs or equipment maintenance. Except, you forget that you started that account so you could be prepared for when things like household repairs, medical emergencies, or insurance premiums blindside you.
When you’re the founder of a startup, no one is paying into insurance or a retirement fund on your behalf. That safety net is entirely your responsibility. Experts say you should also have an additional six months of net income set aside to cover any unexpected purchases.
Should you have to pay for a broken water heater repair or a new prescription when this fund is empty, don’t then use your business account to cover these responsibilities. Things start getting messy when you do.
- Go online for faster lending opportunities.
Keep things organized by considering other forms of payment to cover these personal responsibilities. While many startup resources suggest finding angel investors, using crowdfunding, or even asking your family to help cover your costs, these opportunities rarely present themselves. And when you already have several business loans out in your name, you may find it difficult to secure a personal cash advance from conventional sources.
If the bank is stonewalling you, try looking up alternative lending opportunities from a lender like MoneyKey. As an online direct lender, they provide quick and easy loans for personal emergencies, and they don’t require collateral. Their aim is to make the borrowing experience as simple as possible by eliminating many of the complex formalities that slow down the lending process of traditional lenders. As a result, they can offer loans in as little as one business day, so you can pay for personal responsibilities that need immediate attention.
- Control your burn rate.
Like the forest fires currently razing through California — after having destroyed more than 270,000 acres and 1,000 structures it’s now the largest in the state’s history — your company’s burn rate has the power to level your business to the ground. Though this lesson is obvious, eliminating negative cash flow is an important financial step for your company. By getting a clamp on this issue, you’ll find it easier to keep your business and personal finances separated.
Last summer, Netflix committed to a negative cash flow for the next three years to focus on original series, so it could drum up more subscribers. Your startup probably doesn’t have the capital to take on a gamble of that size. While some burn can lead to opportunity, not all risks are worth it. Speak with other business owners in your industry to see what the average burn rate tends to be for a beginner startup.
- Don’t hesitate to outsource your finances.
Outsourcing is a common way for entrepreneurs to limit their burn rate. If you’ve been at the helm of your ship for a long time, it can be hard to give up partial control to others who aren’t in-house. You were the one who nursed a mere embryo of an idea into a walking, talking business. All of its growth is due to your hard work and dedication. But it’s important to evolve as your business grows.
At the very start, you may be able to save money by organizing your finances with the help of virtual accounting apps hosted by the cloud. But as your business grows, you may not have time to devote as much care to your finances as before.
Consider outsourcing your accounting to a virtual accountant or an experienced small business auditor. These professionals can monitor your finances when you’re busy with your ever-changing job description.
Though their addition to payroll won’t cost as much as a Chief Financial Officer, they are still an added expense. You need to weigh their cost against how much time you’ll save. Almost 25 percent of small business owners spend 120 hours (or three full workweeks) filing their taxes. When you can trust your accountant with these duties, you can re-invest those hours in better ways.
When you find a reliable accountant, you have a detail-oriented perfectionist on your side. They do more than just keep your records organized. They can help you identify ways you can optimize your finances to increase profits and minimize that burn rate. They can also make sure you’re best prepared for the tax season, decreasing your chances of being audited after you file. This alone can be worth their services.
Though bravery and passion are two reasons why your startup exists today, don’t let these strengths brew into arrogance and blind you to helpful information. It doesn’t matter what stage you’re in, you can always learn more. Part of being a fearless entrepreneur is knowing when to seek help. Keep your eyes and ears open for the next bit of advice. As you keep adding to what you know about your finances, you’ll be able to do what you love for longer — and make a bit of money while you’re at it, too.
Wow, it’s interesting to know that around 25% of small business owners spend three weeks filing their taxes. That is why it is recommendable for them to outsource certified public accountant firms, so they use those times for other important business matters. My mom is planning to use her retirement funds to start a boutique in our local town. If ever she proceeds with her business plan, I’ll suggest that she hires an accounting firm to help her with her finances. Thanks for this!