“Before you can really start setting financial goals, you need to determine where you stand financially.” David Bach
In most businesses I have been part of todate I have been lucky to have partners who excelled in the field of financial control. Over the years I have come to realize that without these controls a business loses its foundation and is on shaky grounds even when the company is making steady profit. Once you have a financial accounting system in place and have reliable data regarding the forecasts, budgets and the companiy,s cash flow, your teams gains a morale boost knowing that the business is supported by strong numbers and an understanding of the numbers that have to be hit to keep everyone afloat. Listed below are a couple of a pointers which formulate the basis of this foundational core to reduce the risk of your business going under, due to lack of financial control.
1. Using an accounting system: One of the first things you need to do if your business has a sizable inflow and outflow of finances is to buy an accounting system. For those without financial background this provides a professional framework to operate in and to record in detail the financial health of your business. I have used Quickbooks and it has proved to be a relatively simple and robust accounting system.
2. Forecasting: This provides the business with goals and direction and an outlook for goals that need to be realistically achieved. Doing yearly and quarterly forecasts provides the team with numbers that need to be hit to ensure steady and profitable growth. Without them, you are aimlessly wandering from quarter to quarter and never really hit any targets. Most importantly your goals must be SMART, setting unrealistic expectations will only result in decreased morale.
3. Budgeting: If you have set forecasts and goals for the company, they must be adequately supported by funds to ensure they are met. This is difficult for early stage startups and one of the primary reasons so many venture backed companies burn through their initial funding. There need to be strict controls to ensure that you use your budget as a control measure thereby avoiding hemorrhaging cash through miscellaneous expenses which are fund consuming .
4. Cash flow: The inflow of funds in your business must exceed the outflow . Even though the concept of cash flow is simple to understand, it is a primary reason why many small business fail. By not correctly managing the flow of funds you will be placed in awkward situations where you will not be able to meet expenses. Review your policies on customer credit and negotiate favorable terms with your suppliers. Keep checking that your expenses are being matched by your revenue and if possible, develop a cash cushion to weather you through the difficult times.
If you have not implemented these basic controls at your startup, I strongly suggest that you take steps to integrate them into your daily operations. This will help provide everyone in the team with a transparent picture of the health of the company. Initially it will take time to set up all the controls and will take some getting used to. However it will be well worth the effort. Take control of your finances today because lack of financial control should not be the reason you go out of business!