How to Straighten Out Your Startup Financials
Step One: Make sure your great idea makes for a great business. Step Three: Grow the heck out of your business. What's Step Two? Making sure your startup doesn't trip up in the meantime. And one of the biggest hurdles most new businesses face is the numbers game involving income, profit, overhead, and expenses.
You may have just turned the lights on in your small business, but customers, clients, partners, and investors will want to shine a light on your books. Here's how to get your startup's financial house in order.
Solve the Equity Equation
The first thing to figure out in a startup is who owns how much shares in what. In the old days, equity splits were fairly static, contingent on the number of people there from the beginning. These days, dynamic equity splits are all the rage for startups, with stakeholders subject to a more fluid mix of factors including money brought in, products created, and time spent on projects.
And knowing who has what equity will help you value your startup when investors come knocking and wanting their own share in exchange for capital.
Break Down the Budget
While this should be an essential part of any business plan, a shocking number of startups figure they'll finagle their financials on the fly. Here are a few budget tips for startups, to keep you ahead of the curve:
- Budget by Department;
- Analyze All of Your Expenses (and then);
- Overestimate Your Expenses;
- Be Realistic (hard for pie-eyed entrepreneurs, we know); and
- Check Again Monthly.
Creating a detailed budget and then re-evaluating it as circumstances change is absolutely essential.
Envision the End
Even if your small business becomes a huge success, you'll want to have an exit strategy. And even if your employees never want to work anywhere else, they'll retire someday. Hoping for the best involves planning for the best, and having the best benefits plan for you and your staff will take your startup's financials from today to tomorrow and beyond.
There are legal implications to equity splits (corporate structures and entities), budgeting decisions (tax codes), and benefits packages (Obamacare), so you may want to consult with an experienced commercial attorney when putting your financials together. You can contact one in your area today.
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