As a startup founder of a company, you are well aware of the challenging process of setting up a business, raising funding and recruiting a team. Even with passion and drive as your guide, you know that there are many financial considerations that you will need to make. If your end goal is to build a successful, well-managed company, it’s important to have a basic understanding of finance.
“Learning the basics, and asking for the right kind help when things go sideways, will go a long way toward getting your startup’s finances in order,” says Kamir Kothari, a venture investor and founder.
From budgeting to accounting, here are five important financial decisions that you will encounter as a founder.
How Much Money Do I Need Upfront?
To get started you’ll need to determine how much cash you’ll need to run your business. While there’s no magic formula to calculate your financial needs, you will need to devise a business plan with an expense budget for the first 12 to 15 months.
John Fielding is the founder of Array Marketing, a global retail merchandising service with clients that include Ulta, Chanel, Estee Lauder, Sephora, and more. Fielding and his brother established and successfully grew Array Marketing from the ground up.
His advice is to start small.
“Just because you don’t have all of the capital you need right now doesn’t mean you can’t successfully grow your business. Focus on growing one aspect of the company at a time and you’ll soon find that you’ll become much more intriguing to investors who are willing to support you,” says John Fielding.
Where Will I Get the Funding?
Once you have a good idea of how much cash you need the next step is figuring out where you’ll get it from.
Entrepreneur Tom Malesic explains, “You might be able to get a traditional loan from a bank, borrow money against your house, or get a line of credit at your bank, but there is a good chance you will get turned down because as a small business owner you are a high-risk investment.”
A better option would be to look for investors or ask your friends and family. Many small business owners will need to turn to investors or fundraise to get their startup off the ground.
Do I Need to Hire a Full Staff?
As your business starts to grow, you will need to start thinking about hiring help. More employees mean more payroll so you’ll need to make another tough decision on whether the added burden is worth the payoff. On the other hand, no startup founder was able to build a successful company without the help of a dedicated and knowledgeable team.
Should I Do My Own Accounting?
As the owner of a startup, it is extremely important to keep your personal and business spending separate and accurate. Though doing your own accounting might seem daunting, it could cost a lot of money to clean up later if not done properly.
Nicole Jordan, a business development strategist says, “Besides clean books, there are other real benefits to being hands-on from the beginning.”
For example, managing your company’s books at first saves you money and gives you a better understanding of basic financial concepts. You can always hire a professional once your business is better established.
How Much Money Should I Allocate for Marketing?
You’ve got the idea, you’ve gained the funding and now you’re ready to think about a marketing plan to promote your business or product. As a new founder, it can be hard to allocate money for advertising, especially if your business isn’t generating enough sales yet. However, if you don’t let your customers know you exist, you will struggle even further. A good rule of thumb is to consider spending 10% of your revenue on marketing and then increase your budget once your sales take off.
The takeaway: making sound financial decisions is crucial to maintaining your startup and can serve as the foundation of your company. Get the basics right and you’ll be in good shape for the long run.