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  • Mohd Imran Siddiqui

The Importance of a "Finance Team" for early-stage startups

Introduction


Financial Management: The majority of startups begin by focusing on their product and employees. Of course, this makes sense. A business must first develop a product or service to sell before identifying the suitable individuals to carry out its go-to-market tactics. But most startup entrepreneurs make the mistake of ignoring finance, which may be quite costly to their company. Startup entrepreneurs must have a basic understanding of finance and account for two reasons: one, to keep up with what is going on in their firm in terms of performance and outlook, and two, because they cannot afford to engage a financial specialist in the initial phases.



What functions does a financial team play in the financial management of startups?

To help comprehend how to manage your finance team, it's essential first to grasp what a finance department's primary functions are.

  1. Payroll is responsible for ensuring that employees and contractors are paid and that HMRC payments are calculated appropriately.

  2. Accounts payable and receivable are overseen, and monthly management accounts are prepared.

  3. Credit control ensures that consumers pay their bills on time and that systems are in place to prevent bad debt from arising and address the problem if it occurs.

  4. Financing: Assists the Founder(s) in raising funds from angel and institutional investors to ensure that the company is adequately resourced.

  5. Strategy and planning: analyses and evaluates the opportunities, risks, and costs associated with the company model and plan, ensuring that the fundamental unit economics and growth drivers are correctly understood.


Importance of enterprise financial management for early-stage startups

The final step in drafting a company strategy is to complete a financial plan. A predicted profit-and-loss statement for the next three to five years, as well as a cash flow statement, are included in the plan. A balance sheet and a break-even analysis are sometimes included. Financial management is fundamental in entrepreneurship since it outlines the company's financial objectives.

  1. When you first consider starting a business, you expect it will be successful. However, many entrepreneurs discover after they open their firm that success is elusive. Developing a business plan and a finance plan is essentially a pilot project of what it takes to succeed. The financial plan will make it evident that you lack experience or the market is currently too volatile if the resources are out of reach. You may discover that the price you intend to charge for your goods or services is far greater than that of your opponents.

  2. Investment is needed to start a business. According to the Small Business Administration, a projected financial plan shows how much money is required and when. If you don't have enough money to start your firm, you may have to start on a lesser scale. The financial plan also shows you where there will be a gap. To avoid a liquidity crisis, adjust your revenue and spending predictions or make sure you have other finances accessible, such as your savings or a loan.

  3. Evaluating actual outcomes versus the line-item budget in the financial plan is one of the essential aspects of entrepreneurial finance. It allows you to make whatever changes are necessary to get back in gear. If you're not hitting your income targets, for example, either your predictions are off, or your marketing strategy isn't as effective as you imagined. It's crucial to understand the assumptions that went into the estimates to figure out why they were off. To put it another way, you need to know what you did well and where you needs improvements.

  4. Financiers want to see the entrepreneur's business strategy and an essential aspect of the financial plan, including predictions and assumptions. The loan or investment will not be granted if the financial plan is unrealistic, which is a problem faced by entrepreneurs. Make that you know how to prepare and read balance sheets, income statements, and cash flow estimates. Another reason the financial plan is significant is that it informs you about the different types of financing available.


Key tips for financial management for early-startups

Financial management is, without question, the essential aspect of any startup's success. There will be many things to handle and keep track of, and it may quickly become overwhelming if you don't have a sound plan in place. You have come up with a concept, written a business plan, and started to construct your own company from the bottom up. However, when it comes to the finance system and management of a company, there are various mistakes that young business owners can fall into. Here are the top six pieces of financial planning advice for startups to help them get off the ground and into their financial cycle.

  1. Stop transacting business using your account. It may appear straightforward, but this can quickly escalate into a serious problem. If personal and commercial affairs are not kept separate, it can lead to issues, particularly when it comes to tax season. It would become clear very soon that things may be overlooked. It helps you maintain complete control over your funds, producing positive outcomes in the long term.

  2. When it comes to launching your startup, having a solid network is essential. Develop ties with suppliers, clients, affiliated businesses, and your trusted accountant if you have one. These are the individuals that will keep your company afloat. Your brilliant idea will fail spectacularly without them - and, of course, without the clients. You may wish to go it alone, but make sure to keep the proper people happy and seek advice when necessary.

  3. Managing cash flows is essential. Not just in the early stages of your firm but throughout your whole career as an entrepreneur. Knowing where your money is coming from and when it will arrive is a big part of startup financial management. First, it is critical to negotiate favourable terms with your suppliers and adhere to those conditions. There's no need to pay in advance. Maintain cash flow by paying invoices when they're due. On the other hand, when it comes to processing out invoices, make sure you do so as quickly as possible once the service is completed. Make sure you follow proper credit control measures before issuing invoices. Be proactive in collecting funds and ensuring that everyone fulfils their obligations on schedule. Simply put, if money does not come in, there is no money to go to contractors.

  4. There will be invoices, receipts, and other paperwork and financial records to keep track of. Make sure you have a system in place to keep track of everything, so nothing gets lost in the shuffle. Maintaining accurate records is critical to the health and longevity of a startup's financial management. Keep everything in your possession. Also, during tax season, ensure you receive everything you are entitled to. You will need to keep track of every tiny detail and outgoing that can be retrieved to do it effectively. For example, keep track of your mileage and claim it back from the company and receipts for anything you buy for the company.

  5. Create a budget for yourself and your team to work toward at the beginning of each year. You can then check-in at quarterly intervals to make sure everything is in order. Financial predictions are essential for understanding where you are going and what you want to accomplish as a company. It also aids in the early detection of peaks and troughs, allowing you to correct them before they become a serious issue. Early detection of problems can highlight areas where you, as a business owner, can focus your efforts and identify where you should spend.

  6. Keeping track of everything that goes into startup financial management will be difficult for any developing company – especially if figure crunching isn't your strong point. While various tools are available to assist you in tracking cash flow, issuing automated invoice reminders, and organising data, speaking with an accountant and a bank manager is still a good idea. It may seem simple in the beginning to handle everything on your own, but things will become progressively complicated, and having someone who knows the ins and outs of business finance to walk you through it is a smart idea. They can assist you with planning and budgeting for the coming year, as well as determining where modifications are needed to increase profitability. Solicit the assistance and guidance you require as soon as possible before a problem emerges.


How can Enstore help with enterprise financial management?

Every business owner wishes to gain a better understanding of their organisation. Our POS dashboard shows you the sale of each item in real-time and compares it to previous data, allowing you to forecast future sales. Our inventory dashboard can help you identify non-moving and sluggish products in each store, as well as other important information. Enstore offers business solutions at a reasonable cost that can be paid monthly, quarterly, or annually, depending on the accessibility of the entrepreneurs. You can utilise our resources and services for as long as you need them because we are a SaaS solution. You can scale up swiftly without any technical assistance or experience.


Conclusion

A robust financial management strategy is the first step toward keeping your company solvent and profitable. Many entrepreneurs begin their enterprises without paying attention to capital management, which leads to failure and bankruptcy. To effectively design a business, it is necessary to understand the initial investment required and the amount of money needed to remain viable in a competitive industry, i.e., operational costs.


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