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The reason most people start a small business typically has nothing to do with financial spreadsheets. A 2009 study from the Kauffman Foundation found that most entrepreneurs are in it to “build wealth,” however, followed by capitalizing on a business idea, the desire to own a company, and the appeal of a startup culture.
No matter what idea or passion started a company, the financial realities stay the same. A business needs to build capital, make money, and push financial gains forward in smart ways that grow a brand and bottom-line.
So when starting out, what should small businesses keep in mind about finances? Here’s how to set the record straight from the start—and save valuable time, money, and headaches by putting the right financial processes in place.
Lean multi-taskers, most founders know what it means to wear many hats at once. They are the CEO and CFO, HR department, and every other business role and acronym all rolled into one.
This is why most entrepreneurs need to recognize that their most valuable company asset is their own time. Spend it wisely. What manual entry or time-consuming tasks relate to your financial processes? What do you not particularly excel at doing (perhaps Excel spreadsheets) or comprehending when it comes to handling money, and planning what to do with it?
Make a list of areas for improvement, or blind spots in your current financial system. Then look for solutions. Fortunately, technology can fill the gap for many areas that used to take hours of tedious work.
Take payroll, for example. There are many complicated steps to consider here, including ones that require government record keeping. Payroll software programs and all encompassing accounting software solutions, now accessible online, can help business owners streamline the process into a few steps, and keep accurate and secure records in place.
Time tracking apps can also improve employee oversight and speed up invoicing, payroll, reporting, and even help you better gauge value-based pricing and perform cost estimates.
Next, think about utilizing contractors to your best advantage. A ProAdvisor, bookkeeper or financial advisor, meeting with you a few times a month, could help you stay on track and file meticulous records for you.
The U.S. Census Bureau lays out the facts in hard terms. Every year, 400,000 new businesses are created, but 470,000 of them close at the same rate. The reason most businesses fail? Running out of money. A 2013 Global Entrepreneurship Monitor report showed that obtaining financing and a lack of profitability led most businesses in the U.S. to shut their doors.
Business plans never go out of style. How do you stand out in the marketplace? How will you reach profitability? How long will it take? Do you have the resources to get there? Secure enough operating capital to help you reach the breaking point of profitability.
Next, make pro formas a way of doing business. A pro forma is a financial statement showing potential or expected income, costs, assets, or liabilities in relation to a planned or expected act or situation. Basically, it boils down to picking out the financial metrics that will mean the most to the success of your company. Plan out how you will track those metrics, and the goals you want to meet. Then follow the data, and evaluate your business strategy accordingly.
“Pick a metric that’s simple, easy to measure, and at a high enough level that it includes several different components of the business. Then watch it. This will influence decision making substantially,” Matt Rissell, CEO of TSheets, said recently on a webinar about fine-tuning small business finances. “I now have everything dialed in. Full profit and loss down to cash flow.”
Only with a plan can you really stay on track. Think out how to streamline your key financial processes now, and save everything in the end.