Matt Wool, CEO of Acceleration Partners, said in an article on Startups.com that most startups don’t fail because they lose money. Rather, the downward spiral begins when entrepreneurs leave their financial management aside. A CB Insights report said 38 percent of small businesses failed because they ran out of cash. The author of the article attributed the reason to poor money management by leadership! and added “Not everyone has the aptitude for financial management. Still, startup owners agree it’s a necessity”.
Matt Wool states that over the years, his company has seen a pattern with startups, as once these companies reached their first spurt of growth, they started to struggle with finances. He explained: “There are many reasons for this paradox, including expanding into new verticals too quickly and failing to acknowledge the financial complexity that comes with a booming business”.
In his article, Matt Wool recommends hiring a finance manager or part-time operations officer, which makes a big difference in managing your finances, or at the very least hiring an expert to look at the books. Find a certified public accounting firm or consultant to help every month, ensuring your books are kept properly, which will guide you through financial cliffs in case they get out of hand.
“A leader with too many responsibilities – or who may have only a rudimentary understanding of basic accounting – can not properly manage the finances of a growth-stage company. Further, if the numbers and the reports aren’t right, it’s almost impossible for leaders to make informed decisions about any aspect of their business. And there’s no one solution that guarantees profits, failing to properly manage finances is a surefire way to sabotage success”. The author mentioned this in his article.
3 Tips to get a grip on your Finances
Matt Wool believes that the following steps will help secure your company’s financial future:
1. Process your process.
Do you have a firm enough grasp of your financial process so you can clearly explain to another person who’s not a financial expert? If you don’t have a financial system at all (or it sounds convoluted when you actually put it in words), that’s a problem. Without a streamlined approach to keeping track of expenditures, income, wages, investments, and more, your company runs the risk of defaulting on its financial obligations, as availability of financial services is crucial to business success.
While it’s easy for founders to keep everything in their heads when the business is small, this approach doesn’t scale. Growth without a dedicated support system to manage terms, contracts, and invoices is like trying to balance a watermelon on a popsicle stick!
2. Think about yourself.
As the company founder, you get to decide how involved you want to be in your company’s finances. If you are inclined to oversee this aspect of your business, it’s important to be realistic about your level of knowledge. For example, if it’s in the best interest of your company to switch from cash accounting to accrual accounting, are you confident about how to oversee two sets of books or forecast cash profits versus accrual profits? Many entrepreneurs choose to hire an experienced financial professional to handle that part of the business. Bottom line: You have the power to say you don’t want sole financial responsibility.
Also Read: Six Things Great Startups Do Differently
3. Create checks and balances.
Once the right people are in place, double-back to your process. To scale your business, have a solid financial operation in place: The earlier you can institute dual checks that create redundancies and safeguards, the better you’ll be.
It’s always a good idea to have at least two people look at any check worth more than $500 as well as require dual approval on any large payment. Expenses should get similar treatment. And this safeguard doesn’t rely on any special technology; it’s just a matter of having a firm process and sticking to it.
Matt Wool concludes: “You can be the person forming great ideas that make money, but you don’t have to be the person to manage it. At the very least, ensure there’s someone – or some system – in place that can accurately keep track of it all”.
It is worth noting that Matt Wool is the CEO of the global affiliate marketing agency (Acceleration Partners), which delivering performance-based customer acquisition and partnership programs for the world’s leading brands, including Adidas, Gymboree, Reebok, Target, Warby Parker, ThirdLove, Stadium Goods, and many others.
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