Every starting business needs to build a robust financial infrastructure. Unfortunately, it is easy for founders to neglect their startup’s financial health due to the other million items they require to prioritise.
However, proper financial management is crucial, especially at the early stages of a business. Doing this will set the company on the path to success. To help, we’ve come up with a list of must-dos to enable entrepreneurs to manage their startup’s finances better.
1. Create a Business Account
First and foremost, you have to open a new bank account solely for your business. Even if you’re still at the very early stages, separating your personal and business bank accounts is vital to keeping your startup’s finances in order.
Doing this will make things easier for you come tax time. It also protects your assets should your business experience any legal trouble.
2. Update Accounts
No matter how small your business is at the start, you will incur expenses, and there will be receipts that you have to keep track of.
As your transactions volumes increase, you want to ensure that you have systems to help you keep and record everything in a dedicated space. Software that we love using at Cloud CFO for this purpose is Xero and Dext (formerly Receipt Bank).
3. Stay on top of Cashflow
From the beginning and throughout the entire lifetime of your business, cash flow management is fundamental as this helps you identify where and when your cash is coming.
Keeping a close eye on your cash flow can help you in many instances. For example, when you know that your receivables won’t come in time for you to pay your bills, you can plan to negotiate with your suppliers for payment terms that will work for you.
Another benefit is that you can identify slow-paying customers so you can follow up on any outstanding invoices.
4. Establish a Budget
The start of a new financial year is a great time for startups to set a budget. Your budget should be realistic and created with careful analysis of your current and projected situation. It should reveal your commitments and help you identify cash flow cycles.
In short, it should not be something that you create and file away. On the contrary, you should review it regularly so you can make sure you’re staying within the plan.
5. Seek Help
Although it is possible for founders to stay on top of their finances, a numbers expert added to the team could add tremendous value to your startup.
Of course, an early-stage startup might not require a full-time bookkeeper or CFO; this is where Virtual CFO (VCFO) or outsourced bookkeeping services makes sense.
A VCFO is an outsourced CFO, where you have the flexibility of using and paying for their services where and when you need them.
VCFOs can assist in many areas such as management reporting, cash flow forecasting and financial modelling. They help startup founders understand their finances so they can make more strategic decisions and drive future growth.
If you would like to know how Cloud CFO can help you manage your finances, why not get in touch with us