The financial management of startups is a crucial subject for business owners in Nigeria.
Finally, you’ve launched your multi-billion naira business, congrats! You’ve got your business plan implementation going on well. Your team is buzzing about this new adventure. However, there’s one more aspect you need to pay attention to, “where your money goes.”
Cash flow is like the life wire of a business. As a startup owner, you should be aware of this. How you manage your income and expenditure can determine whether you’ll still be in business 3 years later.
As a startup, chances are that you probably do not have an accountant on your payroll. This may be because your finance is lean or you’re running on an agile framework. The worst scenario is when you do not have any accounting experience at all. If any of these describes you, then this post is just for you.
In this guide, I’ll be sharing with you 8 practical tips for the efficient financial management of startups.
Table of Contents
What Financial Management of Startups is All About
Financial management refers to the process of planning, organizing, and managing the monetary resources of a business to achieve desired goals.
In other words, the financial management of startups is the wise use of funds in a bid to avoid wastage and maintain positive cash flow.
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Below are some key areas that guarantee efficient financial management of startups are:
- Financial planning: This involves setting financial goals, forecasting cash expectations and learning how to handle them to achieve desired goals.
- Budgeting: This covers both the allocation of resources and a detailed summary of how resources will be utilized.
- Investment decisions: This involves making critical decisions about where and how to invest the company’s money in a way that guarantees minimum risk and maximum returns.
- Management of capital structure: This refers to decisions about the perfect percentile mix of equity and debt servicing to fund company growth.
- Cash management: This involves day-to-day decisions about how to effectively manage the inflow and outflow of cash.
- Risk management: The financial management of startups also involves managing financial risks such as interest rate risks, credit risks, operational risks, legal risks, and so on.
- Financial reporting: For the efficient financial management of startups, regular preparation of different financial reports and updating stakeholders on the financial situation of the business is important.
8 Practical Tips for the Efficient Financial Management of Startups
Having established what financial management is and why it is important, let’s take a look at a few tips that can guarantee efficient financial management of startups.
Set realistic income objectives
Everyone wants to start a business and make huge profits. However, you need to understand that it takes time to grow a business to its maximum potential. Efficient financial management of startups begins with setting realistic revenue objectives.
First, you need to research a standard startup financial modelling. Thereafter, map out your goals using the SMART (specific, measurable, achievable, realistic and time-bound) rule.
Keep accurate records
Besides setting realistic goals, you need to keep accurate records to ensure efficient financial management of your startup. Record every financial activity. This will help you monitor and measure your business’s financial performance. As it is often said, what you do not track, you cannot measure.
As a startup, you might not be flush with so much cash. Your business might even experience recurring expenses such as running costs. Hence, for better financial management of your startup, the aim here is to reduce unnecessary spending.
Now, here’s a way out. Create a list of your expenditures. Arrange them in order of importance and urgency. Then, concentrate on the expenses that keep you in business over the optional ones.
Separate your business and private account
Many small business owners run their businesses using their private accounts which is not an ideal practice. Your business should have a life of its own. One of the ways to ensure that is to create a business account for your business—especially if it is registered. That way, you can track your business income and expenditure more easily. This helps you keep tabs on business cash flow as well as filing taxes.
Have a basic knowledge of business accounting and bookkeeping
While you do not need to know every bit of what business accounting entails, you should learn basic business accounting principles such as debit, credit, income, expenditure, profit, loss, etc.
Even if you employ a professional accountant for your startup, it still makes sense to know a bit about these things so you can keep close track of your company’s finances. No doubt, as your business grows, you’ll finally be able to hire a chief financial officer (CFO) and relieve yourself completely of all accounting-related issues.
Use accounting software
Nowadays, there are several cloud accounting software services and templates that can help with the efficient financial management of startups. Another good news is that some of them come with free basic plans that can meet your accounting needs as a startup.
With cloud accounting software, you can track your expenses, keep accurate records and issue invoices. You can also collaborate with members of your team—for example, if you have an accountant.
Some accounting software also calculates taxes and prepares financial reports such as balance sheets or income and expenditure statements. The possibilities are quite limitless. Examples of such accounting software include Zoho, FreshBooks and Xero.
Seek professional advice
I understand that the cost of hiring an accountant might be steep for your startup. Nevertheless, I guarantee you it’s nowhere close to what you’ll lose if you fall foul of any laws. The latter can be very costly.
If you don’t have an accountant on your payroll, it is advisable to seek professional counsel. By doing so, you save yourself a lot of money down the road. An alternative way is to use the services of freelancers as the need arises. You can hire a professional accountant on Upwork or Fiverr for a small fee compared to hiring a full-time accountant.
Ensure compliance with taxes and other laws
Every country and city has various taxes and laws guiding business operations and monthly/annual tax remittance. Familiarize yourself with the tax laws in your location and be sure to comply. Ever heard the saying, “Ignorance of the law is not an excuse?” Of course, it’s not.
For example, if you’re a registered business with the Corporate Affairs Commission (CAC), there are annual filings you need to do and some little amount to remit. If you fail to do so, you incur extra fines. Paying taxes is not optional in a business. Rather, it is your civic duty to the government of the state and country where you run your business.
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Ensuring the efficient financial management of startups requires taking some or all of the steps listed above. Remember, proper financial management is key to the survival of your business. Therefore, as you put these actionable steps to use, you are securing the future of your business.
It is important to note that this guide should be considered a general opinion as all the tips may not apply to your startup situation. Thus, to ensure you meet the accounting standards within your industry or locality, you might need to seek the service of a professional accountant.
- Ajayi Olalekan is a Professional SEO writer & editor with 8+ years of print journalism and writing experience across different platforms — blogs, website, eBooks and social media. His writing experience also cuts across industries like IT, fashion, education management, real estate, consulting and entertainment.
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