As a startup, securing that much needed funding is a huge deal and deserves to be celebrated! But after you’ve taken a moment to celebrate this victory, it’s time to get down to business. It’s one thing to secure funding, but it’s a whole other ballpark ensuring that you’re using this funding in the best way possible. It’s vital that you ensure that any funding you and your company receive is managed, allocated and spent effectively.
How to Manage Your Cashflow Well
Here are five tips on how to manage your funding and cashflow, so you don’t end up splurging and burning through your money.
Know Your Funding
The very first step to managing your funding effectively is knowing exactly what funding you have, and which of it is available to use. You should always know whether your budget is in the black or in the red! A large part of knowing what money you have is properly recording your finances and budgets in a clear and organized format, so you’re always able to see what money is being spent and on which areas of the company.
Staying on top of your budget and spreadsheets is a great way to manage your cashflow, and the more regularly you update your finances, the clearer the picture will be when it comes to your funding.
Impose Some Limits
Having unlimited options doesn’t always work out the way we want it to, which is why having some limits on spending and resources in business can be a good thing. This doesn’t have to be a complete stop to spending but more like a cap on spending, so it doesn’t go as far as running your funding into the red.
Limitations on spending and resources will push you and your team to use the money and resources you do have to come up with new ideas or solutions to existing problems. You could start with setting out specific budgets for each department, so they each know exactly how much money they have to use for their work, and more importantly when each department should stop spending money. It’s the out of the box thinking and mindset that will set you apart from other businesses and set you up for success in the long run.
Clean and Open Books
We’ve talked about knowing what money your company has, but it’s also important that the books and records you keep are clean. Clean books supports much better cashflow management, and without this solid foundation you’re flying blind in regards to knowing where your cash is coming in and flowing out.
You always want to be identifying profitable and loss-making accounts, so you can adapt or restructure your business to what’s working for you and what isn’t. And you want to identify these areas, especially the problem areas, early on in the process so it doesn’t impact your company and its finances too much in the long-term.
As well as having clean books, it can also help to have your books be as transparent as they can be. When your company is open and transparent about its finances – how much each department is budgeted for example – then your employees can better understand the financials, and so are more likely to respect and spend the company’s money. Transparency also means that there’s a sense of accountability when it comes to managing your spending as everyone is on the same page.
Always Think About Your Debts
Focusing on the funding you have is important, but you should also be managing and keeping a check on your debts too. Debt will inevitably affect how you manage your funding and cashflow, especially if you’re making regular repayments, which needs to be factored in to how you spend your money.
You should be aware of how much money you have both before and after making your repayments on your debts. This awareness will then significantly help in budgeting the funding within your business, as you won’t be taken by surprise when a sum of money leaves your accounts to pay off a loan, for example. Take into account your accounts receivable and your accounts payable, so you can stay in control of your debt and finances.
Start Saving Today
Another key part of effectively managing your funding is creating a savings pot. Even though startups do tend to need all the money they have available to them, it’s smart to start saving some of this money in case your company finds itself in a vulnerable position. Markets can’t always be predicted, so it’s essential you’re prepared if the market does experience a downturn with reserves to fall back on.
These reserves don’t have to start off as large sums of money, instead start with saving regular smaller sums of money into a separate account. The aim is to save enough money so that you can still operate for three to six months. A savings fund is just good management!
A Long and Sustainable Future
Managing your funding and cashflow effectively is the key to a long and happy future for your company. You need to think of the long-term growth you want for your company, and ensure you have the necessary funding to match and maintain the expected levels of growth. But you don’t have to do this alone! Simple Startup can help you manage your cashflow through financial modeling to determine your runway, cash management/modeling, budgeting and with the support of an outsourced CFO, to help you handle your financial decisions and strategy like a total pro.
We look at financial metrics as part of our accounting and fractional support services and customize them specifically for each business we partner with. So, if you need a little help with managing your finances, grab some time on our calendar today!