Eighty percent of businesses fail within the 18 months of starting — primarily because of cash difficulties. Setting yourself up for success is paramount. We look at the finance fundamentals to help ensure the immediate and future success of your business.
Get to know the financial health of your start up
CB Insights, a technology insights platform, found that the top reason start-ups fail (38%) is financing: either running out of money or failing to raise capital to keep going.
Setting up and maintaining the financial health of your start-up is vital. But managing finances from the beginning doesn’t have to be complicated. Knowledge is power, especially when it comes to money matters.
We cover simple, effective strategies for staying informed and putting yourself in the best financial position — so you can get on with what you love doing best. Building an incredible business!
Determine the lay of the land
Understand your market and know your niche. Being well-informed on who your target audience is and the unique service you have to offer in the market will help you get to grips with your business finances. You’ll get clear on how much money you’ll need to set up, how much your product or service will sell for, and how much time it’ll take before you can make profit.
This will take an investigation into your industry. Get to know the temperature in your market with comparative benchmarking. Find out the strengths and weaknesses of your competitors and their price points. New businesses can fall into the trap of spending too much money in the start-up phase trying to attract new customers from a wide net.
If you can plan and control the delivery of your product or service to a select market, you’ll protect your entire operation from over-spending. Production planning is an important first step. It means you know your customers’ demands and with the right logistics planning, can manage your internal lead times.
The core message: get clear about your goals and who your customers are — and run a tight ship from the start. You’ll be able to deliver a better service while trimming unnecessary costs throughout development.
Get cash flow basics right
What is cash flow exactly? It's the net amount of cash moving in and out of a business at any given time, typically categorized as cash flow from operations, investing, and financing.
A balanced cash flow is an important indicator of a start-up's well-being. It’s what keeps you operating, paying for stock, supplies and labor — and importantly, allows your business to expand by taking on larger projects.
If you’re leading a start-up, it’s crucial to monitor your cash regularly — weekly, monthly, or quarterly — to keep your finger on the pulse. To calculate cash flow and see how you’re tracking, subtract your total expenses from your total income over a set period. The result will be one of two kinds:
Positive cash flow
You have more cash flowing into your business than out of it. Great! Your spending is less than the amount you received from sales, or loans or investments into your start-up. A positive cash flow indicates that your business can fund operations and is in a strong position to handle unexpected setbacks.
Negative cash flow
You’re spending more money than you’re bringing in, likely on marketing, rent, inventory, and payroll expenses. For start-ups, cash flow from investing or financing services should make up for negative cash shortfalls or your business stands the risk of burning through the cash shown on your balance sheets.
Cash flow strategies
To improve your cash flow, seek out easy wins where you could cut expenses, and try alternative suppliers if they offer a better deal — small amounts add up over time. Send out invoices as soon as possible so payment flows in faster and create a buffer by borrowing money before it’s needed. It’ll put your mind at ease.
This useful guide offers five key strategies to manage your cash flow better.
Finance for the future
According to Small Business Trends, less than half of all start-ups are profitable (2 in 5). Others will break even or lose money over time (1 in 3). Without proper financing, your start-up won’t thrive. No matter how brilliant your business idea is. If using your own capital, or borrowing from friends and family isn’t an option, there are alternatives:
Helps to raise funding through multiple funders, often via crowdfunding websites. The practice also gives entrepreneurs the opportunity to promote their start-up. Each crowdfunding site does charge a fee to list your campaign, but it's not difficult to set up. People typically donate to a project in exchange for perks, such as a sample products or service discounts. Explore your options at sites like Kickstarter, Crowdfunder, or SeedInvest.
Small business credit cards
It pays to shop around. Some credit card issuers specifically cater to start-ups and SMBs, offering cash back rewards, high credit limits, low introductory interest rates, airline points, and other bonuses. It’s usually simple to apply online for a business account and you shouldn’t need to add personal security or guarantees. It’s a good idea to plan and act early though. Some banks are less likely to extend lines of credit or loans to a business that's in troubled financial waters.
Small business loans
Some traditional banks and alternative lenders offer low-interest-rate loans for start-ups. There are many types of loans available, including set term loans, working capital loans, and equipment loans. You’ll need to assess what your start-up requires and analyze the terms on offer. Consider a small business line of credit, where you can access funds from the lender as needed — and importantly, won’t be charged interest until you withdraw money. Useful to support you when unexpected expenses arise.
A forecast of future profits and expenses is essential for any fledgling business. It’s a fundamental element of any business plan and can help you to secure loans, win investors, and create a strategy for long-term growth. It’ll help you to cement your growth plans into clearly defined sales targets and revenue goals, for example.
To forecast for the future, you’ll need to gain an understanding of your start-up's current financial health. A couple of key documents are required:
Balance sheet: the financial statement of your business, including assets, liabilities, equity capital, and total debt.
Income statement: shows your total income and expenditures and whether you're making profits or losses over a given period.
Cash flow statement: summarizes the amount of cash and cash equivalents entering and exiting your business.
Once these statements are ready, you'll be able to analyze and project the sales, expenses, income, and cash flow you expect over a set period, factoring in desired growth. Forecasting allows you to define quantified objectives and keep track of your business performance over time — all backed up by data.
Use business tools to gain competitive advantage
Secure your start-up's future
Get the best technology in early to synchronize your data and safeguard your information. Managing cash flow in a solo app or on spreadsheets might be an easy option and serve you to start — but it’s not sustainable or safe over the long term. Cybercrime is sophisticated today and can pose a real threat. Fundera.com state that 54% of all small businesses think they are too small to be targeted. It turns out 43% of all cyber-attacks target SMBs.
Harnessing a business dashboard, such as 9Spokes, can add a unified layer of digital intelligence, while protecting your information. With data security ensured and cash flow managed, you’ll free up time and head space to develop a great product.
Grow with a digital platform
Platforms such as 9Spokes can serve as your start-up's digital partner, doing the hard work of sorting through data across multiple areas — supporting the growth of your business from the early days and into the future. Team members can access quick and digestible cash flow insights, from supplier and inventory data to sales and profit margins — pulling together a 360°view of your start-up‘s business health into a single space. Your money, securely managed in near real-time.