Below Jason Goldberg, Director and Owner of Spaseekers.com, shares his advice on how start-ups can give their new business a good start by managing their finances successfully.
With 2018 predicted to be another record year for UK start-ups, more people than ever are following their dreams to make their mark in the world of entrepreneurialism.
However, 50% of start-ups crash and burn in the first two years of trading – and many of these failures could have been prevented had the company financials been airtight from day one.
In my opinion, you can have a strong work ethic and a great idea, but a few unwise finance decisions can really set you back – and in the worst case, cause everything to crumble. But by wising up before you take off, you can set your business up for long-term success. These are my top tips for planning your finances right.
Start smart: Get the books right
Before you go to market, analyse your entire business model with meticulous detail and make sure you fully understand every aspect of your operating costs. Compare these costs against your margins to paint a clear picture of your overall operating percentage.
- Test your business plan
Remember, you need to be strict with yourself and have a contingency plan in place: try adding 10%-15% on to your running costs and see if your business model still holds up.
Ask a respected friend or business associate to play devil’s advocate and see if they can pick holes in your business plan. Speak to business owners you know or admire and get their perspective.
What kind of problems have they encountered, and which accountancy firm would they recommend?
- Set financial goals
Establish some financial goals over a 6-month, 1-year, and 5-year plan. While things rarely turn out exactly how you expect, having clear financial goals makes it easier for you to spot problems early on and fix them before they get out of hand.
Make the right decisions: Where to invest
Ever felt like there are far more things to pay out for than you anticipated? From marketing and web development to IT agencies and even your phone provider, it can be easy to get carried away with investing in services.
- Do your research
Be thorough before signing any contracts that tie you into ongoing costs. Expenses like these will have a drain on your bottom line, so do everything you can to make sure it’s worth investing in. Look on Glassdoor for reviews, obtain references, arrange face to face meetings, quiz people and gauge their reactions before making your final decision.
- If in doubt, wait
If you’re not 100% sure about a company’s representatives, it’s probably best to steer clear. Remember: it’s about making money, so be wise about who you give yours to as the future of your business is in their hands.
Monitor your spending: Keeping count
To build a strong financial foundation from the start means you must monitor every single penny.
- Keep track of your income and outgoings
Hiring a professional to do this when you’re only just starting out can be expensive, and so you may want to use accounting software in the early days. As your business evolves and begins to show signs of growth, your financials will naturally become more complex, and it could be time to hire a reputable accountant.
- Make yourself accountable
While you’ll likely need to invest the majority of profit back into your business, you still need to live! Allocate yourself a salary that allows you to live as comfortably as possible, pay the bills, and put food on the table.
Luxuries like holidays can always come later, and you will probably find you don’t have the time or resources to take extended breaks while your business is still establishing itself.
Learn from your mistakes: Trust your gut
As a new business owner, it’s important to recognise that you are always developing and therefore shouldn’t beat yourself up when you make mistakes. Even the most successful and established entrepreneurs are guilty of putting a foot wrong here and there.
You can only make decisions based on the facts you have to hand at any one given time, so always weigh up the pros and cons and go with your gut instinct.