The Importance of Sound Finances for Every Start-up

The big question of whether or not a start-up will succeed and grow can keep many away from being an entrepreneur. The question comes with a lot of doubts and uncertainties: “what ifs”; which can overshadow belief in a great business idea. The truth is, finding an answer to this question is a great “hurdle-climbed” on the path to successes.

The answer to this question usually lies in how a start-up manages its finances.

In a conversation with a few of our team members at Accounteer, especially the Business Development team (which is made up of people with vast experience in interacting and dealing with a lot of businesses), they concord that only a fourth of new businesses survive after three years from inception, while the rest struggle and close down. This assumption was originally drafted from a Businessworld publication.

“Starting a business is easy but continuously running it can be tough. With our experience in the Nigerian startup space, a number of startups succeed and continuously grow, while many struggle to survive and eventually close down. There are a number of factors that contribute to these struggles but it is mostly related to finances and government operational structure,”
— Niyi Adegboye, Senior Business Developer, Accounteer.

A lot of new business owners do not give much time and importance to financial reporting. Ironically, businesses started by older generations were built on the strength of capital, management, and reporting. More often than not, many startup founders let the accountant handle it all simply for government compliance purposes, and not for financial analysis or decision making. There are always missed opportunities if decisions are not taken from real data.

From research, regular and accurate financial reporting can do wonders for gauging the financial performance and health of an enterprise and of course to know when you should introduce new products. It is common amongst new business owners to add new products only when their bank accounts are close to the minimum balance. With proper financial analysis, the business management team would have a snapshot of the company’s future and the iceberg to avoid.

We have seen a lot of business owners relying on guesswork and instinct on their figures and the future of their business just because they do not have enough data.

“Unlike what many startup executives think, the major importance of financial analysis is for the company to know the current status of their business, in order to know the areas to adjust or improve. Without such objective analysis, the start-up may run the business out of emotion and luck.”
— Stephanie Eje, Customer Success Executive, Accounteer.

How to begin, have a great tool!

Before you launch out the business, have a prepared mind of not messing with your books and making sound decisions from them. Use tools that are very easy to use for you to monitor your inflows and outflows. Tools that guarantee you a good reporting system and allow you check in anytime.

“A basic foundation for all start-ups no matter the size should be in bookkeeping.”
— Stephanie Eje, Customer Success Executive, Accounteer.

And while your eyes are on your financial system, make any additional adjustments to your operations to ensure the best possible forecast outcome would be met.

Have a strict Money Management system in place

There needs to be a strict separation of business expenses and personal ones. Strict separation! While running your own business sounds like a better choice than being employed, the realities at the beginning does not look the same. At the start, more working hours will be needed. More foresight, more team-work, more discipline and many more.

Because of the start-up nature, business transactions are often mixed up with personal which of course should not be an excuse.

Intend of mixing up your personal and business expenditure, it will be best to allocate monthly allowance to yourself for upkeep. A planned business budget takes into account the needs of its people, and you are one

Be More Disciplined with Yourself than other Team Members

Try to stick to that allowance you have allocated to yourself. Although, it can be increased when the company’s income improves or an external funding has been secured.