6 Pieces of Advice for Managing Your Startup Finances

Businesses are hard to start. They’re even harder to fund.

Managing a startup’s finances requires obtaining funding and then managing it as you turn an idea into reality. In other words, managing money isn’t the primary focus of a startup — even though it’s one of the main factors that can make or break a new company’s success.

With money such a pressing concern for so many ambitious startups (and startup funding stubbornly hard to find these days), here are a few pieces of expert advice to help you successfully manage your startup’s finances.

1. Address Funding in Your Business Plan

Business plans are a key part of a successful startup. Harvard Business Review contributors Stanley R. Rich and David E. Gumpert refer to a business plan as the key element of a startup that “admits the entrepreneur to the investment process.” The pair of authors adds that “Without a plan furnished in advance, many investor groups won’t even grant an interview. And the plan must be outstanding if it is to win investment funds.”

A sound business plan goes beyond the ability to raise funding. Even for smaller businesses that don’t plan on seeking outside financial support, a thorough plan can play a key role in their startup’s finances.

Chron. contributor Jim Woodruff adds that the financial projects and profit portion of a business plan shows “that you have worked through the numbers and come up with a plan to make a profit. Great ideas are nice, but you need cash flow to start up a business and stay around long enough to gain market share.”

Whether you’re writing it for yourself, your future investors, or both, make sure you invest in a solid business plan with a clear blueprint for financial success. As we’ll see in a moment, this isn’t set in stone. But these forward-thinking elements can help you stay focused and on track as you begin to face the challenges of turning your business idea into reality.

2. Make Your Plans — Then Plan for More

Startup teams don’t have a lot of time or resources to waste. When you’re just getting started, every minute of time, ounce of energy, and penny of funding need to go toward getting things off the ground.

When it comes to efficiency and staying focused, John Occhipinti, founder of the gut supplement company Numo Nutrition, points out that you want to “Do one thing well.” The entrepreneur spins this advice into a metaphor by adding, “You have to focus on customers and do one thing well, really well. Find a deep well first, then start drilling for more holes. Each hole is deeper than you think.”

The concept of staying focused and pushing in deeper into your area of expertise is true for every part of a startup. But Occhipinti adds that as you make your plans, you should always prepare for things to be more than you expect — especially when it comes to costs. “It always takes longer and costs more,” he says.

Including finances in your business plan is a great start. But don’t use that as the gospel truth. Financial projections are merely guidelines. Make sure to always be ready to work harder and spend more than originally planned.

3. Plan for the Worst, Too

It’s fun to visualize how high your startup can fly. But you need to consider the worst-case scenarios, too. Planning for greater costs than expected is a good start, but what if your enterprise struggles? What if it comes up short?

It’s famously estimated that nine out of ten businesses fail within their first year. If your current enterprise happens to fall within that enormous margin of error, what will you do, especially when it comes to finances? Due contributor Kayla Sloan recommends accepting the facts and owning up to the situation if things go south. “You must accept the facts and own up to the responsibilities you have,” she advises, “Act quickly and decisively to get out of a failed startup gracefully.”

Sloan adds that if you see things taking a turn for the worst, resist the urge to spend everything you have to save it. “Preserve as much in cash and assets as you can so you can begin closing the business. Try not to spend everything to save your startup once you realize it is going under. That way you have some money left to complete the business closure.”

Along with preserving cash, Sloan recommends communicating with the important parties invested in your enterprise. She also suggests creating a recovery plan to get things back on the right track and pave the way for new business ventures as soon as possible.

4. Build Your Team Carefully

It’s tempting to load up your startup with friends and family members. Often these connections are excited about your new business’s potential and can even seek to make meaningful contributions. However, you never want to onboard a new member of your core startup team without a specific reason.

Part of the problem is when founders act like college freshmen as they spend their startup’s limited initial finances. You have to resist the temptation to spend money (especially borrowed money) just because it’s there. One of the easiest ways to quietly drain your startup’s bank account is by loading up your staff too quickly.

Instead, make every hire with painstaking precision. Sky Schooley, staff writer for Business News Daily, lists eight positions that should be first up on the docket of any startup’s HR department. This includes critical areas, such as a CEO (chief executive officer) to make important decisions and a CFO (chief financial officer) to oversee finances.

You may not need this exact set of positions right away, or you might need to tailor things to your new company’s burgeoning needs. That’s okay. Just make sure every hire makes sense from an objective perspective.

Once you have your core team in place, work on building strong team chemistry. That way, you can operate as a lean, mean, well-oiled machine as you begin the process of building a company.

5. Capitalize on Revenue Opportunities

Managing finances isn’t just about being organized and on top of things internally. It also includes looking for the best opportunities to inject your startup with cash windfalls. In some cases, especially with bigger enterprises, you can pursue angel investors and seed funding. If you’re on your own, though, one of the best options is to look for uniquely lucrative opportunities that align with your business’s focus.

Airbnb, for instance, launched at an ideal moment. It was a dicey idea at the time, and it lacked proper funding. However, the founding team saw a once-in-a-lifetime opportunity to cash in on meeting a unique consumer need. How? By launching during a recession.

Marissa Levin, co-founder of Successful Culture International, points out that Airbnb defied the odds “during the height of the recession when people needed extra money. Its success directly reflects what the market needed, and was able to adopt, at the precise point in time of the launch.”

Successful finances aren’t just a numbers game. Nor is it all about efficiency. You also need to generate revenue as soon as possible. For some startups, that may be years in the future. If you have the opportunity to generate cash in abundance, though, don’t turn your back on timing things accordingly.

6. Don’t Raise Funding at the Wrong Time

On the one hand, cashing in on lucrative timing is a good idea because revenue is revenue. You aren’t paying interest, and it doesn’t come with shareholders. Funding, on the other hand, is a completely different animal.

When you raise funds for your startup, you’re intentionally tethering your enterprise to investors. These are individuals who will have a vested interest in your success — but not necessarily your vision. They may be patient, but sooner or later, they’ll want to see money coming in and their investments paying off.

With that in mind, Peter Daisyme, warns founders to resist raising money at the wrong time. “Startup blunders can often involve fundraising efforts,” Daisyme declares.

He adds that fundraising can come both too early and too late. “Raising money too early could dilute your share of the company more than you would like. This can slow down your race to making millions, and it can be a distraction for your company. Raising money too late might mean missing your opportunity to scale.”

To avoid either possibility, Daisyme recommends approaching fundraising deliberately and using capital thoughtfully. Funding can be an amazing catalyst for growth. Just avoid treating it like a magic bullet. Raise and spend every penny on purpose.

Making Money Your Ally, Not Your Enemy

Startups have an interesting relationship with money. They harbor incredible potential for profit. However, they also come with costly and unpredictable expenses.

If you want your startup to succeed, use the advice above to set your fledgling company’s finances on the straight and narrow. Create a solid business plan. Hire thoughtfully. Budget for the unexpected. Plan for the worst. Time your revenue and fundraising initiatives wisely.

If you can infuse your financial dealings with wisdom, it can turn money into your ally, not your enemy, as you seek to send your startup into the stratosphere.

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