Startup Finance: Best Management And Control Practices

Written by: William Garriell
06/17/2019

finance-startup

Managing finances is a common responsibility of all companies, but there are specific finance-related care for startups. This model has very particular risks and the analysis of metrics is critical to generating positive results and preventing the company against miscellaneous problems.

In addition, the dynamism of a startup should be taken to the finance department. This is because the sector has some consequences of operations and growth, such as increasing tasks and increasing the volume of data to deal with. That is, the area must be as prepared for growth as the rest. Below are 7 good management and control practices that will make a startup financially strong:

Establish consistent financial indicators

There are several important metrics for startup finance, but measuring everything is counterproductive and even unnecessary. That’s why business leaders need to understand what metrics are really important to their results and that they need frequent follow-up.

For example, a company that works on a recurring revenue model, charging monthly fees, must necessarily measure recurring monthly and annual revenue. Already for a business that works with punctual projects it becomes more difficult and may even generate misleading insights to measure a recurring billing. This is because there is no recurrence in the form of billing.

On the other hand, all startups should measure numbers like cost of customer acquisition and return on their specific investments. This is the criteria that different types of companies have in common.

Do not mix personal and business accounts

This is a relatively common mistake in startups in the early stages and also in small businesses because they often have a single owner rather than multiple partners. The fact is that it cannot happen in every case.

This practice causes extreme disorganization of numbers, confusion in financial control and even forgetfulness, such as paying obligations. In addition, blending accounts may lead to a lack of working capital, which is one of the driving forces behind any company. This is because the payment of personal and business accounts, without separation of the gains and expenses, makes it impossible to maintain an updated cash flow.

Document the cost structure

One of the great careers of finance for startups is the maintenance of a lean cost structure. This is critical to profitability and scalability in operations.

Then, all the items that make up the cost structure of the business need to be listed, with amounts and frequency of payments. Those whose numbers cannot be accurately recorded because they vary must have at least one average posted in the structure. With this documentation it is easier to control the structure and periodically evaluate it to validate the expenses kept.

Ending handicrafts

Regarding financial management itself, manual and non-scalable works, commonly called monkey jobs within startups, allow for the occurrence of mistakes and forgetfulness. It is a possibility that always exists when humans deal with large numbers of numbers. This means that records can be made incorrectly, activities may cease to be performed and occurrences such as defaults may go unnoticed. From this, the company now faces consequences such as:

  • decision-making based on misinformation;
  • loss of billing;
  • payment of interest on bonds;
  • troubles with creditors or debtors

Design cash flow

Startups pose specific risks and often go through uncertainty. For this reason, managers create strategies and remain prepared for both good and bad scenarios.

The same care needs to be taken of finances. This is because a positive cash balance today does not guarantee comfortable situation in upcoming two months. At the same time, a bad result on the cash flow balance does not mean that in the near future, there will be the same difficulty.

Standardize processes

Standardized processes avoid disorganization in tasks and numbers. They ensure greater reliability of activities performed and results from financial reporting and other control and management tools. Some examples of standard financial routines are:

  • order of issuance of invoices and collections;
  • nomenclature of entries in cash flow;
  • categorization of revenues and expenditures;
  • date of monthly closing;
  • indicators in their evaluation

All these actions in finance management for startups prevent activities from being carried out differently to each new processing of information. Incidentally, over time and the increase in tasks and data, accumulated errors can make corrections almost impossible.

Integrate financial management with accounting

To do this is to have both the accounting within the company and the financial sector within reach of the accountant. While the processes of the two areas, which are distinct but complement each other, work together.

 

For example, one of the differences in the business routine is that those responsible do not have to wait for the accounting closures to have access to the documents. They do not need to request them from the accountant. Simply send them in the integrated accounting software, users can customize them as they prefer and do not need to know the technical accounting language to understand.

With this, entrepreneurs have more than their financial controls commonly used for management. Also, they have more immediate, all-encompassing information at hand. This makes it possible to cross-check between different data, the easier it becomes to make positive and reliable decisions. On the other hand, startup accounting receives faster and more accurate data from automated and integrated financial procedures. An organized environment thus prevents divergences between financial and accounting reports are created and maintained. A problem that can even result in the delivery of statements to the treasury with errors.


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