Money management tips for a successful startup business
July 15, 2019
Money management is one of the toughest tasks for startups. When that brilliant business idea hits you, it seldom comes with a complete information package about startups funding, money market rates, and business administration.
However, to run a startup business, you need to become an expert on money management as fast as you can. If you don’t have time to enroll in Finance 101 right now, don’t worry. Instead, take a look at our six essential money management tips for startups.
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Separate your personal and business accounts
While it seems more convenient to have one single account, it really isn’t. After a while (and by that, we mean the first day of your startup’s operations), expenses start to get tangled. Did you buy groceries or printing paper for that $125 charge on your bank account? And what about the next few hundred charges?
Even though this doesn’t seem like a big deal at the time, wait until tax season comes. The IRS won’t take “I can’t remember,” or “Does it really matter in the big scheme of things?” as legitimate excuses.
Keeping separate accounts is the only way to ensure a clean break between your personal and business finances. While it’s definitely annoying to wait around at the bank and deal with all the paperwork, the end result is worth it.
Keep an eye on cash flow
Cash flow is the lifeblood of your startup company. Poor cash flow can lead to serious problems like cash shortages, an inability to pay your invoices, and even insolvency. In fact, insufficient cash flow is the reason 82% of startups fail.
That’s why it’s crucial you know exactly how much cash you have at any given time. And by cash we mean cash, not outstanding invoices (aka accounts receivable). Even though you have every right to expect your business partners to pay your invoice, you don’t know when that will happen. You have to have enough money to cover all of your accounts payable at all times.
It’s not easy to stay on top of cash flow at all times. Therefore, it’s best if you have a business plan complete with a thorough budget that helps you with money management. As an added bonus, a business plan will help you get funding from investors, like 500 Startups.
Curb your spending
While it may sound tempting to invest in the shiniest new software tools, organically produced ergonomic office furniture, and that awesome pool table that’s 50% off on Amazon, you really shouldn’t do any of those.
Even though most of these expenses could be justified (especially the pool table), they’re also not appropriate for startups barely off the ground. Funds are scarce and you have to learn to be frugal. Before each investment, try to discover if you could get the desired assets for less.
For example, you can consider working out of a coworking space instead of renting an office. Hire part-time freelancers rather than employees, and lease furniture instead of buying. These and similar measures will help keep your fixed costs down and ensure the funds you have go towards developing your business.
Track the money
Where do your payments go? It’s important to know who you’re paying and why. Whenever money exchanges hands (or bank accounts), there’s a chance for fraud and financing dubious activities.
Even if you have nothing to do with money laundering or worse, you could still have a few painful moments with the authorities if it turns out that your payment ended up in the wrong hands.
If you want complete peace of mind, you should select a payments provider that verifies the recipients of your payments. Like Veem.
Veem contacts each receiver personally and makes sure they’re legitimate. This way, you can rest assured that you’re not financing illegal activities by mistake. As an added bonus, Veem provides real-time tracking for all of your transactions. This means you’ll know exactly when your payments arrive, which is an enormous help when it comes to managing cash flow.
Veem allows businesses around the world to send, receive, and request payments. Cover all your bases.
Keep your accounting up-to-date
Shoving invoices into the “let’s deal with this later” drawer sounds very tempting, but it’s the guaranteed way to get a panic attack once tax season arrives. Instead, you should consider investing in accounting software, or at least start a spreadsheet documenting your finances.
Keeping your books in order will give you great insight into your money management and cash flow at all times, alerting you well in advance of any potential problems. And, come tax season, your accounting software will ensure you sail through the hardships with minimal stress.
Accounting is a task that’s not easy to manage, especially if your brain is not wired for it. If you feel out of your depth, don’t hesitate to ask an accounting professional for help.
Set up an emergency fund
While it’s impossible to budget for the unknown, startups have to prepare for every scenario. This is why it’s important to keep an emergency reserve of funds to help you out.
If an invoice falls through, a shipment fails to arrive, your office experiences a prolonged power outage, or any other disaster strikes, you may find yourself short of cash. In that case, an emergency reserve can tie you over until things return to normal.
Money management is not an easy task for startups. However, it’s crucial to keep your finances in order if you want your business to succeed. Don’t ignore your finances until they become a problem.
Get all the help you need. Subscribe to accounting software, hire a professional bookkeeper, or even just ask for friendly advice so your startup business can thrive.