A business generally starts with a brilliant idea, tireless execution and sufficient capital.
Fundraising is considered the Holy Grail for most startups. Without startup capital, many startups won’t be able to launch and sustain operations. However, fundraising may fall flat in the absence of good financial management.
Effective fundraising and good money management go hand in hand. Moreover, the initial fund is a critical tool to turn your vision into reality. In fact, “the Bureau of Labor Statistics in the US found that 24 percent of businesses failed in the first year, and 48 percent didn’t make it past the second year (TNW).”
And many businesses fail due to inadequate cash reserves. “If you don’t have enough cash to carry you through the first six months or so before the business starts making money, your prospects for success are not good.”
By getting a better handle on your business finances, you can avoid the most common financial pitfalls and get your startup smoothly off the ground.
Here are a few tips.
1. Create a contingency plan.
Unforeseen life events and even local economic downturns can cause severe damage to your business. You want to ensure that you’re prepared for all sorts of risks.
“What if your main supplier suddenly goes bankrupt? … Or, your payroll clerk calls in sick on payroll day? These things can all cause confusion and disorder if you haven’t prepared for them properly. Contingency planning is a key part of this preparation (Mindtools).”
For this, you need to invest substantial amount of time in planning and assessing associated risks in all aspects of your business. Only then will you be able to deal with worst-case scenarios. Being prepared will save you from a lot of hassle later.
2. Stick to a budget.
Apart from planning, you need to take care of budgeting; it is the foundation of a sound financial plan. A budget can help you track cash on hand, expenses, and revenue needed to grow your company and meet your business goals.
Apart from this, it can help uncover hidden costs, thereby minimizing risks to your business, especially cash drain. Make sure to update your budget regularly, and ensure that is in keeping with your business’ performance and realistic growth projections.
3. Know your financial situation in detail.
Financial literacy is one of the most essential skills that an entrepreneur should learn. Knowing exactly where you stand in terms of your financials will help you make sound decisions and increase your odds of achieving long-term success.
You need to get a grasp on your finances and organize all your financial documents properly. Bookkeeping is critical to sustain and expand your business.
Doing so will help you perform financial analysis, which will further provide you with a clear idea about your business’s performance. Moreover, it will help you identify problems, implement necessary corrective actions, and improve operations.
4. Find a financial mentor.
Having a competent advisor by your side can help you get through thick and thin of running a business. An advisor with a strong financial acumen can help you navigate the complicated business finance landscape and stay on top.
Whether you need help taking your startup to the next level or advice regarding employee compensation, a financial advisor can be a huge help.
When looking for a financial advisor, make sure the mentor is experienced and has the credentials. A dedicated financial professional will help you grow your business by offering the right advice at the right time.
Further, he or she will help you figure out the best investment strategy foryour business. For instance, if you plan to sell silver or other precious metals to raise additional funds, you can discuss it with your advisor. A financial advisor will provide you with the latest market prices and help you make informed decisions.
5. Know your sales cycle.
When you know your sales cycle, you can deal with the financial challenges of business more effectively.
Generating profit during an off-season can be arduous, which is why it is best to grasp the bigger picture. Learn to make the most of a peak season if your business has drastic seasonal sales shifts. Also, amp up your marketing efforts before you need to in order to expand your customer base.
Raise smart money with a few more tips
Acquiring capital for a startup is no walk in the park. But when done correctly, it can help you develop lucrative relationships with investors.
When it comes to fundraising, you can opt for venture capital (VC) funding, crowdfunding, or angels. Consider which option is best aligned with your business model and need.
Invest substantial time and effort to prepare a brilliant fundraising pitch.
In the risk-driven business world, both, financial management and fundraising can prove to be challenging for a startup. These tips can help you get a good grip on your finances and ensure your fundraising experience is a smooth one.
This article has been edited and condensed.
Rose Martin is an editor at Gold Smart – a gold dealer that buys unwanted gold, silver and other precious metals from you and pays the cash in return. Rose is also passionate about contributing her insights on personal finance, entrepreneurship, investment, frugal living and budgeting. When she’s not working, she enjoys cooking, sipping a cold beer and spending time with family.
Connect with @goldsmartnz on Twitter.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.