Congratulations! Your business plan was well-received and you’ve secured the funding you need to launch your startup. Now it’s time to deliver on the promises you made to your investors.
Using your seed money effectively shows stakeholders you’re reliable, makes it easier to secure future funding and ultimately determines how successful your startup will be.
These 4 tips will help make your startup financial management as efficient as possible in the early stages so you can stay afloat long enough to reach profitability.
1. Get visibility into your startup’s financials.
It’s tough to become profitable in the long term if you don’t know how much working capital it takes to operate your startup over the short term. Keeping your accounting up to date is essential for seeing where your costs are coming from, and where your funds are going to.
By monitoring your cash inflows and outflows, for example, you can measure how well your startup is doing at:
- Generating cash
- Meeting its financial obligations
- Funding current and future operating expenses
Accurate, timely bookkeeping provides ongoing visibility into your startup’s revenues, expenses, and cash flow so you can manage your business finances more efficiently.
2. Manage your burn rate.
When it comes to startups especially, new business owners often have to blow through some cash to make things happen. But you should be prepared to reduce your spending if you find you’re consuming the funds in your bank account too quickly.
Your burn rate is a measure of how fast you’re “burning through” your startup capital each month.
To keep your burn rate low, you should aim to:
- Limit your monthly spending to no more than 10% of your initial funding
- Align spending, people, and processes realistically to reach your objectives
- Adopt a goal-setting methodology that uses OKRs (objectives & key results) to pair revenue goals with measurable outcomes
It’s also a good idea to track expenses in real-time as part of your startup’s financial management so you can compare your spending against your competitors.
3. Create cash flow projections.
Proper cash flow management plays a critical role in your startup’s financial health.
If you deplete your funds too quickly, you may need to raise additional capital, delaying your profitability and putting you in an unfavorable position with investors, partners, and employees.
If you’re too conservative with your spending, you could have trouble achieving the necessary growth to impress investors, reducing your chances of securing future funding.
To optimize your financial management, consider:
- Creating cash flow forecasts and other financial projections to ensure your business can continue to operate and grow at a suitable pace
- Using the LTV: CAC ratio to help determine when and where to accelerate your spending
- Measuring your efforts regularly to check that your spending is yielding the results that you want
Using cloud-based accounting software and/or hiring a part-time bookkeeper will ensure you’re making healthy financial decisions that will help keep your startup alive.
4. Build a priority-based budget.
When you start a business, it’s easy to overspend in subtle ways. Your startup could be overspending, for example, simply by hiring a CFO to prepare financial statements when all you really need is an experienced bookkeeper.
To make your startup financial management more efficient:
- Start by identifying your top spending priorities
- Use financial modeling to create a budget centered around those costs
- Funnel any remaining funds into the areas most likely to provide a return on your investment
While it’s unwise to spend money on marginal returns, being overly frugal can be equally damaging to your growth. Avoid settling for mediocre equipment or refusing to make a critical hire just to save money.
Getting seed funding is a big step into the next phase of your startup journey. To reach your goals and stay accountable to your investors, you’ll need to do some basic financial planning and optimize your spending.
The number one cost for most startups is salary. While a quality hire is a healthy indicator of a growing business, you should ensure any new hires you bring on are both timely and a good match.
Outsourcing is a great way to get the expertise you need to grow your small business without shelling out the big bucks that come with hiring full-time employees.
Need professional, outsourced bookkeeping services to support your startup financial management? Enkel can help!