Author: Harry Hoang CPA | Tailored Accounts CEO
I started my business in 2008 with little to no capital, and have since gone through a number of roller coaster rides along my entrepreneurial journey. Ten years may not be a substantial amount of time for start-up veterans, but it is enough to understand the nature of entrepreneurship. There have been a fair share of lows and highs in my entrepreneurial pursuit, so I can thoroughly understand some of the challenges that start-ups in Canberra face. As an entrepreneur who is trained in accounting, I would like to take this opportunity to share my golden rules of financial management for start-ups.
These are some common mistakes start-ups often encounter:
- Failure to realise the importance of financial management - Start-ups with poor financial management tend to suffer from poor cash flow and profit margins, ineffective debtor control, and an inability to meet their business’ commitments;
- Lack of information about alternative support solutions such as recruitment - If crunching the numbers is not your strength, either hire or outsource to an accountant or bookkeeper who will deliver regular and reliable information and advice that you can use to manage your financial position;
- Reliance on manual data try - Stacks of receipts, manual ledger books, overly simplified data sheets, unorganised financial transactions and reports, and overdue BAS and tax returns are common amongst start-ups with poor internal management skills;
- Lack of financial management skills - Start-ups tend to focus on their products, ideas, and clients, often neglecting the fundamentals of their business. I have never seen a successful business that does not have strong financial management.
Over years of working with start-ups and other small businesses, I have accumulated a wealth of experience designing a sustainable and affordable accounting solution. Here are some tips to avoid making those mistakes above:
- A good accounting system is a good return on investment. If you invest $50/month to use online accounting software such as Xero or QuickBooks, it will save you at least $50/month in bookkeeping costs as well as your time. These savings will be crucial for further growth of your business;
- Do not only start raising funds or getting loans when your business is running out of cash. Plan ahead and have good financial controls in place;
- Technology is the key driver of a good financial system. If your accountant suggests that you record everything in an Excel spreadsheet, this is no longer sufficient for doing business in the 21st century. The more automation you adopt for your accounting system, the more savings and accuracy you gain;
- Start-ups need to start working on the business, not in the business. If you aren't able to afford to have a giant financial management system with a qualified in-house CFO, then outsourcing would be the best option.
A good financial care and responsibility is likely to lead your start-up to success – so make sure you cultivate these good financial habits from the beginning and implement them in the way you do things.