A penny saved is a penny earned. –Benjamin Franklin
One thing many entrepreneurs struggle with is money management. You can have the greatest idea on the planet, but if you can’t keep cash flow going and feeding your business, it will starve out.
You can’t treat your startup like a piggybank, even if it feels like you’re doing really, really well.
It’s important to develop smart money habits within your startup right from Day One, so that good financial management becomes an integral piece of your company’s culture.
Smart Money Strategies for Startups
These tips will help you get started:
Don’t Pay Yourself Too Much
Don’t make the common mistake of confusing revenue with profit. Money coming in doesn’t mean you can pay yourself a big chunk–not initially! First, you need to consider your combined overhead costs: payroll, taxes, fixed costs, etc.
I was actually the lowest paid person in my first ten hires. Invest in yourself first; pay yourself last.
Focus on Value When Hiring
When hiring employees and/or contractors, choose quality over quantity. If you have the right hire, it’s like you’ve hired 20 engineers. It is definitely worth investing the time in screening and interviewing well to ensure you get the right people on board early in the game.
Defer Admin Roles until Later On
The entire startup scene is so competitive, you have to be agile and stay lean. There’s no other option. You might even have to be your own human resources and accountant in the beginning. This isn’t entirely bad, though; these are functions you need to know about your own business so when you are able to delegate to someone else later on, you can still oversee operations knowledgeably.
Use Software for Tasks you can Automate
That brings us to our next point… automate every single thing that you can. Any task you can automate is more time you’re putting back into your business. And your time is money! MailChimp can be used to store contacts send emails and track results. Help Scout can automate several functions for your entire team. Whatever you need done, see if can be done with software, especially if it falls within those administrative tasks above, that you don’t have time for anyway. Don’t let the monthly or annual licensing fee scare you off–there are costs to doing business and you have to compare it against what it costs you in real time at your top hourly rate to do everything yourself.
Choose Accounting Software that can Scale
Freshbooks is a great choice for consultants and service-based startups, since it has time-tracking features and other tools to help you track the costs within your projects. QuickBooks has richer reporting and is pretty easy to scale, as it can grow with your business by bumping up a level as needed. There’s also Sage, Zoho, Xero, WorkingPoint, Yendo and more. Bottom line: ask for recommendations from people with businesses similar to use and get this one right the first time, as it’s a pain to switch later.
Consider Cash Flow
Depending on your product or service, you may want to offer an incentive for paying annually upfront (if you’re subscription-based) or for paying in full at time of purchase instead of invoicing. You’ll also need to establish accounts receivable guidelines and collection timelines to ensure money continues coming in when you expect it.
Get Right with Budget Alignment and Allocation
Ensure your budget aligns with the resources you’ll need to hit each of your growth milestones. This is something you’ll want to revisit often. If you aren’t meeting your goals, could it be because you’re running too thin in that area and need to pull budget from elsewhere? Get right with this because if you’re not growing, you’re dying, especially in your easily startup days.
Hire a Tax Professional with Early Stage Start-up Experience
This is one place you don’t want to skimp. You haven’t experienced stress until a letter arrives from the IRS informing you they’re going to be auditing your tax records from the past four years. Or that you owe them thousands of dollars in back taxes. It is crucial that you understand and account for your tax obligations. You can still automate your bookkeeping and keep this in-house, but consult with a tax professional within your state who has direct experience with early stage startups and make sure it’s done right.
In general, the more you know about your business, the more successful you’ll be. Remember that you’re not supposed to make money instantly! Keep as much money as you can in the business to feed its growth and you’ll enjoy exponential returns later on.
Republished by permission. Original here.