by David Tattersall, Head of Client Relations at Handpicked Accountants
The road to success as a startup company can be a rocky and ultimately insurmountable one for any number of reasons but poor financial management is certainly a common cause of crisis among fledgling businesses everywhere in the world.
Here are some key areas of focus worth having in mind if you are running a startup company and aiming to strike the right balance between prudence and optimism when it comes to financial management and building sustainably for the future.
1 – Define your payment policies as early as possible.
There will inevitably be so much else to focus on if you are starting up a business besides the details of invoicing and chasing up payments. Overlooking these details though can be seriously problematic and, over an extended period of time, potentially catastrophic.
Remember that sales are only of value to your business if your customers or clients follow through on their promises and pay what money they owe you. It’s vitally important for startups and any small-scale business to really nail down their invoicing policies and to communicate them with complete clarity on a routine basis from the earliest opportunity.
The aim should be to ensure that everyone you work with knows precisely how much they will be asked to pay and when you expect those payments to be made. The key is getting into good habits when it comes to sending invoices and chasing payments diligently if they ever end up going unpaid for any reason.
2 – Borrow only what you need.
Life can move quickly in the context of startup operating and when ambitions are high it can be tempting to jump headlong into every opportunity that comes your way. In certain respects this may prove to be a fruitful approach but when it comes to financial management, rushing your decision making can be costly.
This can be the case particularly when good progress is being made and you’ve been successful in opening up access to loans or to financial backing of any kind. An idea worth having in mind in these moments is that it is generally more prudent in the longer term to borrow only what money you need rather than what money you have been offered access to.
Turning down offers of credit or of financial backing can seem counterintuitive and somehow as if it demonstrates a lack of ambition but doing so can often help startups to maintain growth at a pace that ultimately proves more sustainable and better for business.
3 – Don’t ignore the details.
Managing a startup company is a stern challenge of even the most experienced of business brains, not least because it requires oversight of such a wide variety of different operational elements and therefore an array of different skillsets.
Leaders in these scenarios are required to have the bigger picture in mind at all times but also to make crucial decisions on a smaller scale and in the short term. Financial management is a key part of the equation in all this and it demands a keen eye for detail.
What’s particularly important is that any drags on financial performance should not be ignored. If your costs are too high in a particular area then that should be addressed rather than put to one side or kicked into the long grass.
Sometimes fledgling businesses need to evolve quickly out of necessity to become something quite different from what their founders initially intended them to be. This kind of adaptability and flexibility can be absolutely essential to success and eventual sustainability.
4 – Expect the worst and plan for it.
So much of good financial management in the context of early-stage startup activity is about being prepared and having options in mind to ease the pressures during difficult moments.
Most businesses experience challenging conditions periodically and smaller businesses of all kinds have to expect their cash flows to come under pressure at times.
The best attitude that startup entrepreneurs can adopt is to aim as much as possible to be ready for anything. In literal terms that means having funding options and financing solutions in place or in mind in case those best laid plans go awry or, for whatever reason, your business finds itself faced with a concerted squeeze on its cash flows.
Nobody has ever said or suggested that creating a startup and guiding it to a position of sustainability is easy but one sure way to make that prospect impossible is by underestimating the importance of good financial management. By sticking with the principles outlined above though there’s a good chance that you’ll be able to keep yourself and your business on the right track and heading in the right direction.
David Tattersall is Head of Client Relations at Handpicked Accountants. David has over 35 years’ experience in professional services working in finance, accountancy and corporate insolvency – providing him with a wealth of knowledge across the financial spectrum and the ability to advise individuals and businesses accordingly. In his role at Handpicked Accountants, David can call on his expertise and extensive contact list to help businesspeople find a reliable, reputable and efficient accountant in their local area.