Have you just obtained the funds you need to start your business? Well, then kudos! No one can deny the brainpower and sweat it takes to successfully convince investors and lenders. Even accumulating the savings for your startup requires sacrifice.
But how do you ensure the money is not mismanaged after you kick-off operations? After all, cash depletion is one of the top reasons startups fail.
In this article, we are going to look at financial management tips to help put your business funds to efficient use. Now, let’s get to it, shall we?
Don’t spend too much on inventory
As a new business owner, do not get too excited such that you end up purchasing more inventory than is necessary. Doing so will tie up cash over a long period of time since you might not be able to use or sell off the stock as fast as you may expect.
Never make big decisions based on anticipated future revenue
A recipe for disaster is when you make expenses or acquire debt with the hope of covering up with future revenue. It’s not safe to make assumptions in business. What if the cash inflow doesn’t come on time or even come at all? It is good to always have a sizeable cash reserve if you wish to stay afloat.
Plan your expansion
Although business expansion depends on market demand, you should make sure your revenue will surpass your expenses before you go ahead to hire new staff, increase your office space, or even buy more equipment and supplies. If you expand too quickly, you may not be able to handle the impact.
Hire the right staff
After you start your business, you may be running things by yourself. But as time goes on, you will have to hire people to help. When such a time comes, you need to make sure you hire the right people. The success or failure of any business depends a great deal on its human resource.
Hire talented, reliable, and high-performing people who can take your business to the next level. Don’t hire too fast or too cheap.
Separate your business account from your personal account
To have an accurate picture of the financial health of your business, you need to keep your business account separate from your personal account. Every naira your business earns should go right back into investing in its growth.
However, this does not mean you should neglect to pay yourself right from the start. As the business owner, allocate a monthly salary to yourself and keep to it. Even if it’s not a very big pay (especially when you’ve just started out and trying to nurture a business that’s still in its crib), you need to be comfortable if your business is to survive. Once your personal life suffers while you run a business, the latter will invariably suffer as well.
Plan your marketing campaigns and monitor the metrics
Marketing is very crucial for any business’ success. But the question is, “how do you know if you are investing in the right marketing campaigns?”
You need to focus on the marketing and advertising channels that yield the greatest turnover and drop those that are not producing the desired or expected results.
Before you invest in any branding or marketing campaign, you should clearly note what you expect to achieve in terms of naira earned (or any other metric) within a given period of time.
Also, every time you get a new customer, try to find out how they got to know about you (whether word-of-mouth, TV or radio adverts, on the web, and so on). This way, you will know which campaign sends you customers often.
Know your gross margin
Your gross margin lets you know if you are making a profit or loss. It’s easy to get carried away when you are handling a lot of cash. But what if for every naira you earn, you actually spent 2 naira? Clearly you are not making any progress.
Always track your input and sales costs and find ways to make adjustments if you wish to maximize your profit and stay in business for a very long time.
Analyse your cash flow
Cash flow is the lifeblood of every business and therefore needs to be properly analyzed and managed. This will enable you to control the inflow and outflow of cash and make better business decisions. Depending on the sensitivity of your financials, this analysis may be done monthly, weekly, or even daily.
Save for lean times and emergencies
Set aside some funds that will come in handy in times of dire need. Unexpected expenses can occur at any time, leaving you desperately in need of cash for the day to day running of your business.
It is therefore advisable to keep at least three-months’ worth of expenses in a contingency account.
This should be done not only for your business, but also for your personal expenses. Doing so will prevent you from dipping into your business funds when you are personally in need of money.
Your business is an entity of its own and it’s poor practice not to set clear boundaries between your personal funds and your business funds. Only a bad merchant consumes his own wares.
Set a clear budget
Your aim as a business owner is to steer your business towards profitability. One way to achieve this is to set monthly budgets.
You should always have a clear plan for the future in your business. Set a budget for operational, marketing, and other expenses, no matter how inaccurate. It will serve as a guide on what you can and can’t afford to spend on every month. As time goes on and you get a clearer picture your revenue and expenses, you can then make your budgets more accurate.
There’s a not so popular saying in business, and it goes like this: look after the kobo and the naira will look after itself. Although not so popular, you can see the truth in it.
Every small decision counts when it comes to running a business. Therefore, keep your fingers on the pulse of the financial details of your business by keeping good records, planning prudently, and learning from the blunders of failed startups.