Why Understanding Your Financials is Vital for Startup Success

Why Understanding Your Financials is Vital for Startup Success

Did you know that one of the top reasons startup businesses fail is because they run out of cash?

It’s true that finding reasonable funding sources can be difficult as a startup business. But the problem goes deeper than simply not having the cash. The problem is that most startups don’t utilize their cash in the most effective ways.

One way you can avoid the startup cash curse is to keep a tight watch on your financials.

Keep reading our startup 101 guides to learn the benefits of understanding your finances.

Manage Losses Better

Losses are inevitable for startup businesses. Keeping track of financial performance allows you to manage those losses better and it just might save your business in the long run.

Plan for those early-stage business losses by building them into your initial budget. This will give you a good idea of how much money you can lose on a monthly basis and how long your business can sustain those losses.

After you’ve been in business for a few months, review your financial performance and compare it to your initial budget. Make adjustments based on the severity of the losses. Reviewing and adjusting your plan regularly can help you navigate those early losses better and it will give you vital information on how to proceed in the future.

Understand the Value of Your Time

Your time is valuable. Keep track of how many hours you work every day and compare that to the income you’re bringing in. Then, as you continue to build your business, ask yourself if what you’re doing at the moment is the best use of your time.

It might make more financial sense for you to bring on a bookkeeping service to do your paperwork and keep track of income and expenses. Then it frees up more of your time to concentrate on business growth. Tracking financials can help you see the picture more clearly and maximize your efficiency.

Stick to Your Budget

Staying on budget is one of the most important things you can do as a new business owner. Watch the business cash flow carefully by creating a monthly cash flow statement. Your Virtual CFO can help with this.

A cash flow statement is different than an income statement in that it recognizes when cash actually moves in and out of your business. Certain factors like creditor payment terms, days receivable, and the schedule of fixed costs affect this flow of cash. Understanding financial trends will help you revise your budget as you go along.

Establish Better Goals

The better you track financials, the better your goals will be in the future. As you move along in the first few months of business, you can track how well you’re reaching the goals you set before you started. As much as we prepare, we can’t always predict how the actual mechanics of the business will work.

Setting new goals is a lot easier when you have historical financial data to review. Revisit your business goals regularly using your business financials as a benchmark. Then adjust your goals accordingly.

Startup 101: Why Finances are Vital

The first thing you’ll learn in startup 101 is that there are a ton of benefits to knowing your business financials. Find a good system of accounting for startups and hire the help you need to keep track of financial performance.

At Cloud CFO, we provide the expert financial assistance you need to get past the startup growing pains. Contact us today to learn how we can help you succeed!

  • Tags

  • Archives

  • Subscribe to Cloud CFO newsletter for blog updates, business tips and news

    Get free startup advice

    Signup to our newsletter today and receive startup tips, news and everything in between.