Balancing the books in a startup – a practical guide

Balancing Books

Startups are, unsurprisingly, just starting up – which means that they can often have trouble getting their finances in order. It’s very important at the early stages of a business to keep the money flowing for growth – but making sure you have an accurate perception of your own company can be difficult.

Writing for Business Insider in 2011, CEO & Founder of Startup Professionals Inc Henry Zwilling argues Many entrepreneurs actually refuse to do financial projections beyond the first year, insisting that no one can predict the future. They need to realize that investors ask for projections, not merely as predictions, but more as commitments from the founder and his team. If you are not willing to commit, don’t expect anyone to back you”.

Balancing the books in any business is a challenge, but even more so for startups. There are a lot of different ways you could cut costs and manage your finances more effectively as a startup. Let’s explore a few of them shall we?

Startup Financials – Why Is It So Important?

Your finances in the early stages of your business are crucial because they are a key driver of growth – which is what business is all about, particularly in the beginnings. There are just so many things that rely on the finances of your startup including the following:

  1. Your Potential For Growth – The healthier your finances, the more likely you are to be able to grow.
  2. Your Reputation – If you’ve got a good financial footing, creditors and potential business partners can see this and will view the company more positively – this is fantastic if you’re looking to borrow in order to grow.
  3. Your Capability – You might have grand ideas, but there’s not much you are able to do if all of your money is stuck in an endless stream of unnecessary expenses and overheads – good finances mean using your money sensibly.

The financials of your startup are integral to the company, and it’s important not to underestimate the role that they play – especially in regards to how other companies, creditors or investors view you.

How To Reduce Costs In A Startup

There are many ways that a startup can reduce costs. Bear the following in mind, and you might just find it that little bit easier to do so.

  • Keep Things Internal – A good idea is to keep as much as you can ‘in house’, this means you can save. Of course you have to be able to do a good job at those things otherwise there is very little point! However, in the early days managing your own customer service and IT (for example) is quite achievable – and a great way to reduce costs.
  • Do Your Research – It’s important you have a good handle on what your own reputation, as well as other companies you work with, and also what your competitors are doing. Doing a company search is advisable as it can help you get a good assessment. Here you can determine credit rating, limit and much more. It can also help you avoid bad partnerships and gives you an objective view of your own business.
  • Negotiate – Business author Gwen Moran wrote for Entrepreneur.com in 2012 that bartering is key to reducing costs when you have a necessary service you have to spend money on. She cites business expert Shel Horowitz assessment of restaurant owner Bob Syracuse case – “he trades about $20,000 worth of food and services per year, saving an average of $4,000 per year in the difference in value between what he receives and the actual cost of what he barters”. So it’s worth doing.

The reduction of costs in a startup is a gradual thing, but it does take the right approach. For example, if you’ve got a frugal mindset you will find it much easier to spot ways to reduce costs.

How To Boost Funds In A Startup

Reductions in costs are obviously a fantastic way to save, and you can be sure that a good balance sheet will make your startup feel a lot more stable. But the real potential for growth is in gaining income.

Of course, the success of your business relies on many things including your business plan and the freshness of your idea – but these are some broad tips many startups can take advantage of:

  • Financing – There is a huge amount of capital available for startups. This is through both government schemes and private initiatives. Start-Up Loans is a fantastic example of a government scheme, with business support and mentoring available. The privately funded Virgin StartUp is a similar example of a privately run startup financing scheme.
  • Steady Growth – You might have an instinct to keep your foot on the accelerator no matter what, but much like on the roads you might lose control and crash. It’s all about growth, but it’s about steady growth. Writing for Forbes in 2011 Nathan Furr, graduate professor at INSEAD, states “premature scaling uses up your precious cash more quickly, which means you have less runway to discover that you were wrong and readjust. One of the smartest strategies for a startup is to save cash wherever you can because it gives you more chances to try and get the fit between your product and the market correct”.
  • Digital Skills – A great way to grow a startup is to grow the skill range of the people working within it. Everyone from top to bottom in a startup can learn something valuable from digital training courses to keep ahead of the tech curve. A digital skills gap is something you want to avoid, but effectively filling that gap can spur growth and boost funds.

When it all comes down to it, you do need to make your business idea as fresh and relevant as possible to maximise the chances of growth – however using these insights when running a startup can help a good idea develop into a great one as time goes on.

Balancing Business Finances For Growth

Your startup relies on being well-run, and there is little more important than the financial side of things if you’re focussed on reducing costs and ultimately growing your company from a startup into something more substantial.

If you have any questions, or you would like to share something, please feel free to comment and let us know. Also, be sure to check out the rest of our blog for more resources and information. Particularly relevant to this post would be the ‘Small Business’ section – so check there for more.

By Alex Novakovic at MadeSimpleFind Alex on Google+

Resources

http://blog.vonage.co.uk/five-tips-reducing-business-start-costs-vonage/
http://www.forbes.com/sites/nathanfurr/2011/09/02/1-cause-of-startup-death-premature-scaling/
http://en.wikipedia.org/wiki/Lean_startup
http://www.entrepreneur.com/article/222968

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