How to Manage Startup Finance; Small Business Tips for Entrepreneurs

It’s undeniable that the key to business is finance; you’ve got to make money, have a reliable cash flow and balance the books. But for many new businesses, finances can be really difficult. OneCoWork Chief Financial Controller Oscar Navarro joins us to answer some key questions: What do you prioritise? What are the “must-knows” for taxes? How much can I afford to spend? How do I accurately predict cash-flow?

If you’re considering starting, recently started or you’re in the planning stages of launching your new business, this article is for you. 

1. Cash, cash, cash

One of the most common reasons why startups fail is because they don't have proper cash flow management. 

You should know where every single euro of company money is spent. Many entrepreneurs think that as soon as they have an amazing business idea, most of the work is already done and that will generate a high level of recurring revenues, so they won’t run out of cash. 

But, unfortunately for them, it’s not that easy. Good cash flow management is essential, and to do that, you’ll need to develop financial policies to accurately predict where and when the money flows in and out.

Firstly, an Accounts Receivable Policy (try to set up Automatic Payment Systems if possible, establishing short due dates and things like a discount for early payments, depending on the margins of each product sold).

Secondly, an Accounts Payable Policy (it’s worth to spend time on developing it, by setting payment terms that can be negotiated with each supplier). After setting up these 2 policies, you will be able to prepare cash flow forecasts more accurately and give yourself extra financing if your payment terms are longer than the due dates you establish to your clients.

2. Lovin’ taxes

Taxes, that world nobody understands... 

When you set up a new business, different tax filings are required, depending on the kind of company and activity. On an early stage it’s simplest to find a tax expert, who will take care of all the tax submissions and documents to report and then, as soon as the company has grown and has more resources to increase the team, a tax accountant can be hired, which is cheaper than having the tax presentations outsourced.

Don’t see the tax expert as an expense, because a clever tax strategy saves a lot of money in taxes, helps maximize the profit and, of course, avoids big penalties that could arise for bad practices and negligence.

3. Austerity! Limit your fixed expenses in the beginning

In the beginning stages of a startup, keeping your expenses low is the key to keep your cash positions. Try to save costs as much as you can, for example when choosing an office. A perfect option is to be established in a coworking space, where you will avoid the need for big purchases like furniture, decoration, high rent, real estate agent fees etc. (And of course, you’ll be introduced into a Community that will help you find new customers business ideas, talent and suppliers). 

In this first stage, allocate your funds to grow and generate revenue. These are the main priorities.

4. Keep your equity!

It’s a common misconception that asking for a loan is like making a deal with the devil. You don’t want a long commitment to pay it off over the years to come, mainly because you have just started your business and the future looks a bit “unclear”.

And that’s why so many people decide to sell some equity and resolve their financial shortage for a while. However, this creates long-term problems because other investors may not share your vision and eventually change the course of your business.

Go and talk to the bank to see the financing options they offer and financial expenses related to each product. Perhaps you will find a deal that works for you. Most banks have created departments focused on early-stage startups and entrepreneurs that can provide creative and flexible lending solutions. Aside from the bank, there are a few institutions that are providing loans to startup companies in great conditions like ENISA, Inveready and more located right here in Spain.

5. No customers = no business

Focus on customer acquisition. Put forth the effort to find the channels where you will be able to find customers, test it, study the costs and gains, and go for the ones that could be more lucrative. Of course, it will take time to identify which ones are most profitable for your business, but as soon as you find the correct ones, the investment on it will be worthwhile. The value of your company will be defined by the level of recurring revenues, so work extremely hard to maximize it!

Being an entrepreneur and starting a business can be a lot to take on, but can also be rewarding. Be in control and have a plan for your startup's financials so you, too, can reach ultimate success.

Looking for more articles to aid your business? Head over to OneCoWork’s Blog section and read up all of our latest stories that tackle achieving success in the workplace. Or simply hit the subscribe button!

Oscar Navarro is OneCoWork's Financial Controller, having been with the team since 2016. Connect with Oscar on LinkedIn here.

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