Navigating the financial landscape for a business is hard, especially for startups. Here are a few financial practices that will keep you on the right track.
Running a startup is like a balancing act. You will oversee handling different aspects of a business, appointing the right people, and maintaining everything under the right rules and regulations.
One of your most important responsibilities as the founder of a startup is managing money. Capital is regarded as the lifeblood of a startup. If you do not know how to manage your money, your company will get extinct soon.
Handling finances properly can extend your runway and give you more time to focus on your business. Here are a few ideas using which you can make better moves with your finance.
Keep your personal and business finance separate
As a business owner, you are perhaps excited about your new business idea. Though, ensure that you do not commit any careless mistakes with your money. The common mistakes that people do when they start their own company is, they mix their personal cash and money of the company. This does not mean that you cannot use your existing capital for funding the business partially, but it will be better if you open a dedicated checking account for your business and conduct all the transactions through that business account.
If you could not separate your personal and company finances, you could end up facing potential tax issues based on how you incorporated money and could also face problem in raising money in the future. It will ultimately create a mess.
Think hard about equity
Equity does not simply mean something about value. It is also about control. When it comes to funding, startups usually exchange equity for capital, offering partial ownership of the organization to an investor or an investment firm. There is nothing wrong with raising money this way, but you must be sure that it is the correct move.
These days, there are more ways than ever to secure financing for your startup, and all of them do not come with an equity price tag, like SBA loans and grants. Another part at which equity comes into the picture in exchange for the services or to appoint a key executive. Equity is one of the major enticements for potential employees, but always it should not be given.
Research about the business
It may seem like common sense but creating a habit out of understanding some of the important business metrics of your startup can help avoid issues in the future. Keep a detailed report and be sure to review all your financial statements consistently. You are running a business, and the main objective of a business is to generate money. So, for this, you must look at how much money came in, i.e. your total revenue. But this does not end here. Think about your revenue in terms of profitability or how much money you have after calculating the operating expenses.
Now, if your business loses money, no need to panic. It is common to lose money, mainly during the initial days. And investors do understand this fact, but they also expect your revenue to surpass your costs, and you will earn a profit.