Startup founders are often inspired to launch their companies to solve a problem. Fueled by their leaders’ passion, skills, and vision for the future, startups can change the world. But passion and vision aren’t enough to keep a new venture’s lights on.
Back in the Golden Age of startups, it seemed that VCs and angel investors came out of the woodwork. Young enterprises were deluged with so much cash they struggled to spend it all. Now, on the back end of a global pandemic and facing a potential recession, it’s safe to say startup leaders face a much-altered landscape.
If you’re a founder in today’s environment, managing finances is just as important as executing your startup’s vision. Here are four tips that can help you keep your entrepreneurial dreams alive as you strive toward profitability.
1. Get Expert Assistance and Guidance to Optimize Your Financials
As noted, founders frequently start their projects in response to an identified need. Whether their solution is a new technology, method, or product, most founders spend their time on creation, not accounting. Managing the financial side of a startup may not be the most exciting task, especially for a more technically minded team. However, establishing a solid financial management process is essential for providing startups with the right foundation.
To streamline your processes and manage overall expenses, you can partner with an expert in accounting for startups. With a deep understanding of startups’ unique needs, risks, and opportunities, these experts add major value. Your accounting partner can also assist in identifying financial incentives and opportunities that are available to entrepreneurs. They can help you sift through various tax credits, grants, and loan programs, offering greater insight into the long-term benefits of each.
2. Network With Peers to Learn About Financial Pitfalls and Successes
Learning from others’ experiences in any aspect of life can prove helpful, and the startup world is no different. Network with peers in your industry or other founders to build relationships and share stories. Everyone will be in different phases of their journey, meaning there will be lessons learned worth sharing.
Sync up with startup leaders at industry events or through your chamber of commerce’s business incubator. Make connections through affinity groups, especially those whose shared interests include funding matters. While talking about the financial aspects of your business may be awkward at first, it’s an effort worth working through. Others’ past experiences, good and bad, can provide additional insight that can prevent financial errors and identify potential opportunities.
3. Structure Compensation and Benefits Strategically
People are often the most expensive line item for any business, and startups are no exception. However, as you bring on team members, it’s important to determine how best to compensate them for their contributions. In the early stages, everyone may be working with little pay, instead fueled by a shared sense of purpose and ownership. Later, as you expand beyond your founding team, new recruits will seek competitive salaries, and you’ll be vying with well-established firms for talent.
Develop a compensation structure for both early stages and when your startup is adequately funded. This can be a path from startup infancy to maturity, which can offer financial flexibility and incentives for team members. Determine how you’ll handle equity, firming up share ownership with the help of an attorney. No matter your employee type, ensure your offer is attractive to the talent you need while protecting your finances. Use competitor research, employee and candidate feedback, and industry best practices to develop a structure that supports your goals.
4. Go Easy on the Extras
An image often associated with startups is a tech-heavy office full of catered lunches and ping-pong tables. Unfortunately, stereotypes don’t exist without some kernel of truth. Many startups reject the traditional office culture, which at its core isn’t a bad thing. But without boundaries, expenditures on perks and creature comforts can get out of hand, potentially jeopardizing your startup’s future.
Avoid becoming a cautionary tale for the startups that follow you and commit to smart financial management. Resist the urge to mirror the norms of flashy enterprises, many of which have later faltered or reduced their luxury perks. Focus instead on investments that help your product or service be the best it can be. These expenses tie into your purpose and, many times, can be included in your tax-advantaged business-related expenses.
Stay Focused on Your End Goal
Many startup founders can be described as scrappy, visionary, hungry, and uniquely talented. It takes grit, determination, and a clear vision to build something new. However, the journey to achieving your dreams can be rife with distractions. Avoid derailing your startup’s success by staying true to your vision and focusing on your goals. Some compromises may be necessary at times, but reflect on what you’re potentially exchanging and at what cost.Make measured financial decisions that foster your startup’s capabilities. While not always glamorous, committing to risk-aware financial management, strategic investments, and careful hiring is vital to success. Remain focused on your goals, and your startup may soon be the leading example for founders following in your footsteps.