The most important aspect to keep in mind for your startup’s beginning is “How much more is your startup making than spending?” The phrase “Cash is King” is thrown around quite as an answer in the new business venture world, but the phrase is rarely explained as to how that can be best achieved.
Below are 3 tips on how you can best manage your startup’s finances, keep “Cash as King”, and prolong the amount of time your startup can take to get up onto its feet.
Beware Getting Your Personal Finances Attached to Your Startup’s
A danger many startup founders can place themselves in is that they tie in too many of their own personal finances to their fledgling businesses. This is a sure fire way to fund your new venture or pull your struggling new business out of a grind, but in the chance that your business sinks and burns, so does all of your own cash.
The trick is to have contingency plans already in action for when the time comes that you need an emergency jump-start. Going to banks for loans is a better plan than getting your own personal finances involved, but banks are not likely to invest in a business that appears to be sinking. Have a loan ready to go as soon as you foresee a hiccup in the road ahead, so that when the time comes you need that jump-start, you already have an emergency plan arranged to pull your startup out of the hole it may have fallen into.
The best option, of course, is to spend a good part of your time trying to get funded by winning a business plan competition or building a great pitch deck. If you need help finding business plan competitions, consult local universities or startup accelerators.
Keep It Within Your Means
A temptation when first setting foot into the startup world is to spend funds on “essentials” you believe are needed to make your startup the best it can be: Expensive and top of the line equipment, hiring a full staff, and setting up an official office space. Although these things will certainly give your startup the look and feel of a well-established business, the very existence of all of these factors together is a guaranteed way to burn through your funds right out of the gate.
Avoid any of these purchases as long as possible, and you save valuable cash, which is extremely limited in your starting days. Significant overhead is your biggest enemy.
Defer Outgoing Payments as Long as Possible, Collect Incoming Payments as Soon as Possible
A startup does not become fiscally sound right at the beginning of its journey very often, so it’s wisest to plan that your business will not be an exception. The amount of time from the moment your startup is born to the time it begins to receive payments from clients can very, and minimizing the amount of payments going out from your startup is essential.
Delay outgoing payments as long as possible, and collect payments as soon as possible. Even when your startup crosses the line of success at some point in the future, continue this practice.
While the practice sounds unfair in theory, it’s actually a very common business practice known as “Net D.” Businesses of all sizes establish deadlines by which accounting bills must be paid in full. Typically when working with larger corporations, you’ll be forced to wait for a Net 30 or Net 60 accounting period — 60 days until your invoices are paid! You can take back the upper hand by establishing your own Net 60 payment process for vendors and a Net 15 (or less) payment process for clients.
Keeping your startups finances organized and intentional is essential to pushing your venture continually forward. Keep expenses as low as absolutely possible, collect payments from clients as soon as they can be received, and have a backup plan other than your own personal finances to pay for expenses when those unexpected curve balls get thrown towards you.