How can startups avoid financial pitfalls?

Having the seed of an idea and seeing it grow into an extensive business plan can be a great pleasure. Whether it's taking products and offerings from the drawing board and turning them into something tangible or even just commencing trading itself, the early days of any company can offer a great level of nervous excitement.

Moreover, by their very nature, startups have huge growth potential and can go from passion-project to long-term success story if the right path is followed. However, many businesses fail in the first few years after they're set up. 

Why? A mixture of bad planning, low sales and poor financial practices. Focussing on the latter in particular, mismanagement can quickly lead to issues that get the enterprise into a precarious position, and one which is typically hard to recover from.

So, how can startups effectively manage their finances? Here are a couple of things to keep in mind:

Plan, plan and plan some more

Even the most progress-oriented new enterprises with the biggest and best ideas will struggle if they don't map out where they want – and more importantly, where they can afford – to be further down the line.

Research from Harvard University suggested that all startups should aim to grasp market size, business potential and competition when coming up with any strategic plan. Once these factors have been noted, the financial picture of the enterprise will become a little clearer and determining what funding is needed can be simple.

Find suitable sources of income

If the business can afford to begin trading immediately and see return on investment in the not-too-distant future, then it could feasibly be run from income and profits. However, this is seldom the case in today's business world.

More likely is the fact that exterior funding will be required. At the very beginning, this could consist of friends or family who are willing to invest. When the startup begins to progress a little further, there will be a time when banks, or even private investors, should be considered.

Of course, this whole process must also fall in line with any planning, but getting the appropriate sources of supplementary funding in place is a surefire way to decrease the chances of financial fallout further down the line.

At WMC Accounting, we know that the first few weeks, months and years in any businesses life can be a tumultuous time. Thanks to a huge amount of experience with startups, we are ready and willing to turn any seed of an idea into a fully grown enterprise.

Priding ourselves on our levels of service and integrity, click here to contact us and start the journey towards more stable financial ground.