Financial Insights for Scaling Startups: Managing Growth Wisely

Growing any business is really hard, but if you are running a startup then scaling the business has to be on the agenda from the very beginning. While it may seem like a daunting process, scaling startups can be incredibly rewarding. It does come with its own financial challenges, and managing this growth is key to ensuring your startup thrives along the way.

Financial Challenges

Before we look at some tips on how to manage cash flow for a scaling startup, let’s explore some of the financial challenges that may occur, and how you can overcome them.

1. Not creating a functional business model

The excitement of launching a company can sometimes overshadow the need for a business model, but it is crucial to map out things like revenue streams, cost breakdowns and understanding your niche market too.

2. Ignoring positive cash flow

Positive cash flow is the key for any business to survive, and it is crucial that startups understand the need to generate more cash than is being spent. Simply staying on top of your finances will ensure your business has a healthy cash flow.

3. Unplanned funding

Don’t put all of your eggs into one basket when it comes to funding, try to gain funding from several different sources such as angel investors, crowdfunding and even government grants. Create a detailed financial forecast to identify future funding needs that your business may have.

4. Good sales, poor profit

Selling lots of products or services can feel great, but if you don’t see the money rolling in you may need to take a look at your profit margins. Ignoring these will prevent your business from being financially stable on a long-term basis.

5. Poor financial management

Startup founders often get so involved with developing a product that they don’t stay on top of their finances. By investing in a good accountant to help with financial planning, your startup will be in the best possible position to scale up.

Financial Planning Strategies

Strategic financial management isn’t just looking at the finances of a business, it is everything from planning to managing and controlling a business’s financial health so that more informed decision-making can take place. With a clear vision of long-term goals, a business can be more strategic in planning for the future. Here are some key strategies that businesses should follow to support growth:

1. Use historical data to reflect on past performance
2. Monitor your profit & loss statement regularly
3. Conduct regular budgeting and forecasting
4. Track real-time financial performance

Tips on Managing Cash Flow & Investment

1. Create a budget

This is the key starting point for managing cash flow effectively. You can keep track of expected income and expenses, allowing you to plan for the future. A budget also clearly identifies areas where costs can be cut. If you aren’t sure where to begin with this, start by listing out your fixed expenses and go from there.

2. Keep an eye on accounts receivable

Accounts receivable is the money a business is owed from its customers for the goods or services sold. It is crucial to monitor how quickly customers pay their bills, and how much money is expected to come into the business. Financial accounting software can help to keep track of this.

3. Control inventory

If you are selling products, inventory management is key. The balance between having enough products on hand to meet the needs of your customers, and not having too much cash tied up in stock is difficult. If you have short-term cash flow problems, it may be an idea to hold a sale to inject some cash into the business.

4. Plan for unexpected expenses

It would be great to have a crystal ball that could see any future expenses that may crop up out of nowhere, but unfortunately, this isn’t possible. By having a plan for dealing with additional expenses, you can ensure the cash flow within your business remains healthy. Put aside a portion of your income for those unforeseen circumstances.

5. Manage debt

If you are serious about scaling your startup business, you need to preferably have no debt in the business. However, if you are waiting for funding to come through and need to invest in aspects of your business then you may have to temporarily get into debt. If you take out any loans, make early payments to reduce the interest you pay over time, and where possible use a business card with an interest-free grace period.

So there you have it, our guide on financial insights for scaling startups. If you have any questions or would like further advice on how to grow your startup sustainably, get in touch with the experts at Wright Vigar today.