People start businesses for many reasons, including having a clear vision or personal ideas, but for long-term viability, a business must be financially sound. In the start-up and growth periods, many businesses spend much more than they earn; however, for long-term health, a company must ultimately reverse this trend and earn more than they spend. For these reasons, financial Management for start-ups is a key area to consider.
Good (and bad) financial management can affect a company’s ability to achieve financial health and sustainable growth. Bad financial management may even lead to a business failing, so it’s crucial to ensure this is handled correctly. So, how should one go about planning good financial management?
The first place to start is with a profit and cash budget, based upon realistic assumptions. One should also always allow a ‘buffer’ within cash limits – because events rarely go exactly to plan.
Your budget should pinpoint your financial requirements. You then need to identify the most appropriate (and available) funding for this need. This could include loans, overdrafts, invoice financing or asset-based financing, all of which could be arranged through a bank.
However, nowadays there are many more options in terms of lenders, and these should also be considered.
Good bookkeeping is essential for any business. This is the process of recording an organisation’s day-to-day financial activities and is crucial for keeping on top of cash flow and budgets. This should be done on a real-time basis, so that you always know your current financial position.
Businesses that fail often have poor record keeping. Good bookkeeping will lead into prompt, informative and reliable management information on the performance of all aspects of your business.
Like bookkeeping, this must be done in real-time to keep on top of expected income and expenditure.
As well as real-time recording, one needs a rolling 12 week forecast to allow the firm to react to any unexpected events. A bank manager will be less sympathetic to a request to provide additional funding as an emergency (because it hasn’t been identified), than if given reasonable notice. Having this forecast will help to improve your credit score too!