5 Big Dos and Don’ts of Financial Management for Startups
As a financial professional for over 8 years, I speak from experience when I say there’s more to financial management than we can imagine and the benefits of good financial management exceed the cost. There is very thin line between poor financial management and a good startup going bad, though lack of funding and support can also contribute to this. Having said this, the biggest mistake startups make is to attribute financial management to mainly large organizations and feel that they can wait until they become big or successful before paying attention to their finances — this can make the business to go downhill really fast!
A startup with a compelling business model and poor financial management can die or fade away.
Investors and other stakeholders take startups planning to raise fund more seriously when they can perceive some level of organization in terms of financial management — ‘the numbers’ as generally called. A level of credibility and confidence is then transmitted when they can established that the financial management is top-notch. Therefore, startups that pay attention to financial management at the early stage are data driven, scale operations better, and make informed strategic decisions that add value to their businesses.
Here are my response to some frequently asked questions relating to financial management.
We do not have an Accountant; who really need to know this?
Doing the little things is vitally important in financial management. If you are going to ask an investor to put money in your business, you should be ready to build a culture of proper book keeping showing evidence of productive use of fund. This includes keeping track of expenses (money OUT) and revenue (Money IN), which in my opinion is the foundation for a top notch financial management and every other thing just fall in place!
The good news is without a full-time accountant, startups can now get their financial statements prepared and audited at a very decent (start-up)fee and the availability of several financial management tools have made the task attainable. Start-ups who get this right at that early stage are in the right direction in raising fund for their businesses.
The bottom line is: startup should ensure that there are supporting documentations for all ‘money OUT’ of the business e.g receipts, invoices, copy of cheque paid out, payment vouchers etc. In addition, there should be a process for tracking all ‘money IN’ to the business — a sales invoice can be used in tracking this or a receipt issue to customers. When all of these are in place, financial management is already made simple!
We have NOT started making money, so we would defer until we are BIG….Really?
There are myriad benefits in getting financial management right from the day a business is incorporated. It’s understandable that the main reason startups delay on this is the COST, but the benefits exceed the cost. One of the biggest benefits of financial management is that it automatically makes a business a data-driven organization beyond just keeping the score, and this has a multiplier effects — investors, financial partners and the board are well informed and guided; growth are better managed; and the business is well positioned to take on business opportunities in a smart way.
The importance of financial management for any business or startup can’t be underestimated. Without managing the money, no company can be sustainable. Below are the big 5 financial management “Dos and Don’ts”.
· Do: Adopt a budget at the start of the financial year
· Don’t: Spend more than you make. Avoid operating ‘in the red’ as much as possible by keeping track of your expenses and pay attention to trends.
· Do: Understand that revenue generation is critical for the success of your business.
· Don’t: Co-mingle the business funds with personal funds — it’s dangerous for the success of the business!
· Don’t: Forget to review performance, and remember to compare with your budget in a consistent manner in order to address any deviation.
Should you have any questions or need more insights, don’t hesitate to get in touch via @ajanakubiodun or biodunajan@gmail.com
