Manage early finance to help your business grow sustainably.
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Securing investor money is a major aspiration for most startups. Having a great business idea is a great start, but the real work is in turning it into a revenue generating product or service – and this usually requires funding.
To secure funding and build investor confidence, start-up founders and CEOs need to “know the numbers” at all times. Without full oversight of your business’ finances, securing long-term success will be more of a challenge.
It’s important to track the money coming in and out of your company, as well as overall performance. Using KPIs such as sales performance figures or conversion metrics can help monitor spending and keep the business growing, without overspending.
The next challenge, once you’ve secured investment, is putting it to good use. Investors commit funding based on specified expectations and deliverables, that ultimately boil down to measurable growth.
Business owners need to identify the best possible way to spend their investment – an unwise decision could prevent any further investment down the line.
Where to spend
It can be very challenging for business owners to work out how to prioritise their spending. Do they focus on marketing, research and development, or on hiring talent? More than likely, it will be a combination of everything - so careful decision-making is required.
As a founder or CEO, it’s your job to ensure that your organisation is set up with the right policies and processes to make sure that money is allocated to meeting customer needs and innovation.
Technology can help a business grow. Investing in automation, for example, can eliminate many of the time-consuming manual administration tasks, freeing up finance and operations teams to focus on more complex revenue generating work.
A good accounting software solution is key – and there are a range of supporting tools, such as CRM systems, that can integrate seamlessly with your software of choice for better record management.
Keep an eye on your investor’s money
Nothing damages investor confidence faster than a start-up burning through their money with little to nothing to show for it. Before spending one penny, you need to develop a comprehensive plan that outlines how and where it will all be allocated.
A good spending plan will take a lot of time and energy, but it will be well worth it. An important starting point is to understand the key processes and infrastructure support systems necessary to sustain business growth.
A good IT infrastructure, for example, will enable your team to communicate better and share knowledge across various channels. What’s more, a virtual CFO and a cloud-based software option like Xero can help ensure proper financial management.
It also pays to develop a HR strategy that includes actionable staff benefits and wellbeing policies, to attract and retain top talent. And finally, a strong go-to-market strategy that covers relevant marketing and sales tactics to push your product or service where your targeted audience will see it.
Jumping into a big expense without enough planning can become a major business problem – and the impact can be especially problematic for startups that don’t have any resources to fall back on.
Make sure you can show how every significant purchase has been well thought through, and will contribute to company growth. If, for example, you are considering a particular piece of software, make sure that your employees are primed for implementation and adoption to ensure a fast ROI.
That said, don’t let these cautions put you off from pursuing investment. Your company’s current funding round is unlikely to take it as far as your ambitions want to take it.
Don’t spend outside of your means, especially on spontaneous purchases – and instead always think about your long-term objectives and how to achieve them with the money you have.
Smarter spend management
Spending money well requires a balanced approach. As a founder or CEO, you need to have complete oversight when it comes to your company’s spending and financial habits. However, you also need to empower your staff to spend as and when is required. Too much financial micromanagement can hamper productivity and growth.
Of course, staying on top of expenses has traditionally – and in many cases continues – to result in relying on cumbersome manual processes, authorising multiple credit cards without enough oversight, and unfortunately, forcing employees to pay out of their own pockets to get what they need.
Fortunately, there are ways to ensure that money is well spent company-wide. For example, rather than giving staff credit cards, give them pre-paid cards with specific budgets that are relevant to their needs.
The benefit of pre-paid cards is that it gives your staff financial autonomy and flexibility; they can control how much they spend – but within the broader parameters set by the management team. Of course, knowing how, when and where money is spent is crucial too.
Rather than having multiple siloed pools of spending money like various bank accounts and a petty cash stash, consider digitised reporting process. With a single, centralised digital banking account in place for the business you can streamline all expenses for a far more efficient set-up.
This enhanced transparency and visibility is underpinned by a mobile app that makes it easier, for example, to upload and process receipts digitally. With such a system in place, you’ll be able to review and analyse all of your company’s spending data.
This information will provide valuable insights into the health of your start-up’s finances - and inform your decision-making.
What’s more, to ensure that staff still spend wisely, even on their pre-paid cards, it’s important to put in place a comprehensive expense management policy that clarifies what items can and can’t be expensed.
All staff need to be trained so that the company’s spending system is well-entrenched and observed.
There are many factors involved in achieving startup success, however good financial health is definitely at the top. Manage your money and cashflow with vigilance, but make sure you have the right tools and people in place to help you spend it well.
Don’t take your eye off the numbers and not only will your investment go further – you’ll stand a better chance of securing more in the future.