Starting a new business is an exciting challenge, but getting your finances right from the outset is crucial for long-term success. That’s why we’ve created the “Getting the Basics Right” series – to guide startups through essential steps for growth. We’ve already covered registering your business and securing legal protection. Now, it’s time to master your finances.
Effective budgeting, forecasting and cash flow management are key to making informed decisions, allocating resources wisely and navigating market uncertainties. Proper financial management helps steer your business toward growth and avoids risks that could threaten its future.
Creating a startup budget
There are a few steps that go into creating a startup budget. These include:
- Listing all your startup costs by identifying the expenses needed to get your business off the ground i.e. equipment, licences, legal fees etc.
- Determining your fixed expenses (rent, salaries) and variable costs (marketing, inventory)
- Estimating your revenue by projecting realistic sales based on market research, customer demand and industry benchmarks
- Creating a contingency fund to set aside some of your budget for unexpected costs
- Reviewing your budget regularly and adjusting based on performance
Cash flow management
Effective cash flow management is crucial for business sustainability, and keeping a close eye on cash inflows and outflows ensures a solid financial position. Forecasting future cash flow helps you prepare for potential surpluses or shortfalls, enabling proactive decision-making.
Negotiating favourable payment terms with suppliers and customers optimises cash flow timing, while a cash buffer acts as a safety net for unexpected expenses. Prompt invoicing and diligent follow-ups on overdue payments help prevent disruptions, and regularly reviewing expenses allows for cutting unnecessary costs to enhance flexibility.
Financial forecasting
Setting clear financial goals is vital for guiding growth. This can be achieved by using past performance data to predict future trends and defining your short and long-term targets to inform what you want to achieve with your business. You should also make sure to account for wider economic, competitive and industry changes, not just your own.
By planning for growth, you can anticipate increased expenses as your business begins to expand. Things like staffing, production and upgraded technology costs may be necessary, so being prepared financially is a must. Even when you have achieved your desired growth, you should continue to amend your plans to remain stable during changing market conditions.
Bookkeeping
Bookkeeping is important for small businesses for several reasons. It allows you to keep track of your financial transactions (sales, expenses, purchases etc.), and helps you understand your cash flow as a result. Bookkeeping also keeps you tax-compliant, as the government requires businesses to accurately report income and expenses.
With consistent bookkeeping, businesses can also make informed decisions such as whether you need to cut costs, where to invest or if it’s time to expand – as a small business, the latter is key. Bookkeeping is not just about tracking numbers – it’s about ensuring that you’re setting yourself up for financial success and growth.
How we can help
At EKW Group, we specialise in empowering startups with the essential tools and expertise needed for sound financial management. We can provide the invaluable asset of managing and structuring your startup finances, ensuring that your operations are compliant and your cash flow remains stable.
If you would benefit from more detailed guidance for starting up a business, please don’t hesitate to get in touch with a member of our team on 01942 816512 or email:
Chris Barlow, Tax Manager: [email protected]
Need help with registering your business? Read the first part of the series here.
