Getting your first investor, seeing what was once your whole year’s salary funnel into your company’s bank account in one day, and having a product launch are all exciting things to experience as a startup owner. However, they may be short-lived if you don’t have your finances in order.
In fact, running out of money is the second most cited reason startups fail, according to a report by machine intelligence platform CB Insights. The company analyzed over 101 startup failures and found that the lack of market need was cited in over 42% of the cases, followed by running out of cash (29%), and a team that just doesn’t work well (23%).
As great as your product or service may be, you don’t want to lose everything because you didn’t manage your company’s money right. Find out how you can make your startup company more financially sustainable.
Track Spending to the Last Dime
At your company’s infancy, you’ll be lucky to hire full-time accounting staff. You often have to do it yourself for the first year or so. One of the ways to easily monitor your company’s expenses is by using a business credit card for them. This way, you can pull up statements easily on your computer or your mobile device. Plus, it builds your credit with your business’ bank, which will ultimately lead to higher borrowing limits.
If you do have to pay cash, be sure to keep the receipt and write down the details of everything about that expense and scan it for a digital copy. Keep the original copy just in case. Review your spending every month to see where most of your money goes to and which items or services to cut back on. Apart from assuring that your company’s expenses are transparent, keeping tabs on your spending also keeps you in good terms with the Internal Revenue Service or IRS, as they’re quite stringent on their tax return standards.
Sort Out Your Taxes
Filing business taxes is a road that’s easy to get lost in. While you’re still looking for an accounting team to help with your tax strategy, you only need to worry about the type of form you’ll submit and which expenses can be deducted. The form will depend on your business entity. Luckily, the IRS has a complete list of them. All you need to do is to fill them up digitally, print them out, and then submit them according to your schedule. You’ll get to use the expense records you’ve compiled once you have to declare your tax deductions. The IRS can deduct everything from equipment to even travel expenses as long as they’re ordinary and necessary for your business. This is why you have to record every penny your company spends, especially if it’s through cash.
Skip the Fancy Stuff for Now
While a lot of the startups you see online have lavish offices with game rooms, catered pantries, and even wine tastings as perks, you don’t really need them to be successful. While your business is still in its early days, focus on generating revenue. Start small like allowing remote work and flexible working hours. Add in more luxurious benefits once you have a strong customer base and a steady flow of income.
When you’re still starting out, it’s easy to just focus on improving your product and/or service and neglect what you spend just to do so. However, this negligence can lead to your company’s untimely demise. Keep these tips in mind as you’re sorting out your expenses and your company will be well on its way to financial stability.