Managing your startup’s finances can be tricky.
As a busy founder, you probably feel like you’re spinning about a million plates trying to keep track of everything. You’re juggling growth and product development and hiring, all while making sure the company stays liquid enough to meet your obligations to a variety of stakeholders.
But with all of the systems and tools available for managing your finances, it’s easy to overcomplicate the finance side of the business. Sometimes those tools are more of a distraction than anything, and we lose track of the basics. We tend to forget that simply covering the basics can go a long way towards keeping your finances in order.
So let’s take a look at getting back to basics with these 5 startup finance fundamentals. Making sure these are sorted allows you to turn your attention to more strategic topics.
1. Cash Flow is Vital (Funding or Not)
Cash flow is critical for any business. There are always expenses and salaries going out, but what’s coming in depends heavily on your business model.
Whether you’re invoicing B2B customers monthly or collecting daily B2C payments from your payment provider, running out of cash can put your business in a world of hurt.
Solid bookkeeping lets you stay on top of your cash situation and helps avoid cash flow surprises.
With investor funding and a growing business, it’s sometimes easy to let hiring and expenses get out of control. Budgeting well while keeping expenses in check can help you reduce your cash out flow and extend your runway.
On top of being good for your own peace of mind, positive cash flow and clean books are also attractive selling points to potential investors.
2. Prepare for Taxes Well Before Tax Season
Keep diligent track of expenses and receipts. Scrambling at the last minute to track down your documentation and justify your expenses is stressful and can lead to mistakes. And mistakes are something we like to avoid, especially when it comes to taxes.
Estimated tax payments can get quite large quite quickly. Make sure you’re considering those payments as part of the expenses in your budget. It can be helpful to set aside a portion of all revenue to cover the quarterly payments, because the IRS won’t wait very long for their money.
While it never hurts to do your own research, working with a qualified CPA with startup tax experience can help you make sure you’re maximizing deductible expenses and claiming any tax credits you might be eligible for.
For example, many local and federal tax incentives exist for startups, often in the form of R&D credits or deductions for “green” investments. Take time to learn the details about what credits are available to your company.
3. Keep Excellent Track of Employees and Contractors
Startup teams can grow in headcount quickly, especially with outside funding or rocketship sales growth.
But staying on top of this growth is critical. Missed withholdings and poorly kept paperwork can lead to additional fees and other issues. These issues can cause a lot of unnecessary stress, both for employees and whoever is responsible for payroll.
Further, make sure to check your state regulations on using contractors and the necessary documentation. Depending on what the contractors are doing and how much control you have over their work and finances, some jurisdictions may actually consider your contractors to be employees.
4. Connect Financial Metrics to Business Drivers
Cash in your bank account doesn’t magically appear. It’s the result of your customers paying for the services and products that you deliver, minus your operational costs.
Every aspect of your business touches the accounting part at one point or another.
Connecting inventory, sales, marketing, and customer service to the finances does two things. First, it gives you clarity on what drives results for your business. A good awareness of your business drivers can help you to better steer your business.
Furthermore, it gives your entire team a healthier understanding of what success looks like to your business and how their contribution makes a difference.
Be as transparent as possible with your team about how their actions and the business drivers they are responsible for fit together with the other aspects of the business that they may not see on a daily basis. Sometimes non-finance team members struggle to connect what they do with revenue generation and customer satisfaction that drives growth.
5. Partner with Startup Finance Experts
Solid financials are key to running a successful startup. But complicated systems aren’t necessary to keep everything running smoothly. Often, making sure you’ve got the basics covered is enough.
Partnering with a startup-focused accounting solution can give you a leg up on the rest of the market. A great CPA knows the ins and outs of startup accounting and tax law, and can regularly present you with a clear picture of how your business is performing. Let them handle most of the finance back-end so that you can focus on running your business.
Founder’s CPA specializes in startup accounting. If you’re ready to lay a solid foundation for your startup’s finances, we’d love to talk about setting up a solution that’s right for you.