Finances are always an issue with startups. In fact, good habits can often mean the difference between a start up that thrives and one that fails. So how do you give your start up the best chance at survival? Here are our top 7 tips for creating strong financial habits:
1. R&D is king, keep investing in your technology
Firms invest in R&D because they want to grow by developing new products. It's hard for a company to remain competitive if it does not stay ahead of the technology curve. The government incentives Australian companies with cash refunds for genuine R&D expenditure through the R&D Tax Incentive program. And, the refunds are generous.
2. Keep your runway under construction
In the infant stages of your startup you need to reinvest as much as you can back into the business and its savings. This will mean that when a good opportunity presents itself you have the funds to do so. The longer your runway the healthier your business is.
3. Be investor aware
Opportunities for investment can come at unexpected times. If you find yourself in a situation where you need investment to implement a new idea or an investor wants in on your business then you need to be ready. There are a couple of basics that you should always have on hand. Firstly strong financial intelligence and modelling. Make sure you have your finances up to date and some forecasting in place to show where the business is going and the financial position it is currently in. The second is a pitch deck. Having a few slides that represent your current business and where it is going in a visually appealing presentation can show investors that you are serious about your business and their investment.
4. Create good financial management practices from day one
Set up your accounting file, process it each month and then think about a dashboard for your business which highlights the main pain points of your business to provide regular insight. From our experience the following core areas tend to be the most important for a tech business in startup phase
- Cash Summary including, inflow, outflow and burn rate
- OPEX & CAPEX
- P&L and Balance Sheet
5. Have a startup savvy accountant
There is a big difference between start up finance and established businesses. You need to have an accountant who knows the difference and can give you the most appropriate support. A good accountant can help you understand your finances and make sure you are on the right track. This is a relationship that you need to nurture, it isn’t a set and forget.
6. Keep your business and personal banking separate
Make sure you have a separate bank account for your business and that it is separate from your personal accounts. This is cleaner and helps ensure that reporting is simpler and more accurate. This will also mean that you can review your personal finances separately so that you can see how healthy your personal finances are too.
7. Take action
By reviewing your finances weekly you can quickly identify red flags, but it doesn’t stop there. Make sure that you take action when there is a red flag. If you aren’t sure what action you should be taking ensure that you seek the support and advice of a financial advisor such as your accountant.