The rise of startups is on its peak. There are many entrepreneurs who decide to build a startup and start from the scratch. The idea of founding a startup often brings innovation, vision, and enthusiasm. However, what founders often lack is the basic finance knowledge.
A basic finance is not just about budgeting and reporting, it is about making strategies to scale and thrive within the industry. If you are an entrepreneur, there are some basic financial knowledge to master.
Basic Finance for Entrepreneurs
Here are some aspects to understand before founding a startup.
- Cash Flow Management
The very first thing to understand is the cash flow management. Cash flow management is the ability to manage the outflow and the inflow of the cash. Also, it is the sense to predict the future cash needed.
- Financial Budgeting
For entrepreneurs, basic financial budgeting is important to manage where all the funds and costs goes. They can create yearly and monthly budgeting based on their current financial situation.
- Account Receivable Management
Account receivable management is important to manage credit risk in the industry. Payable and receivable account will help to track which cash flow is in the form of credit. Also, it keeps the financial healthy by knowing which assets are available to use.
- Funding Options Management
There are several funding options for a startup to manage and thrive. The funding can be from hard cash, investors, crowdfunding, or bank loans. By knowing the options, a startup can create priority funding and what is best for their current strategies.
After understanding some key terms for basic finance knowledge, an entrepreneur should also know about basic financial statements within their business process.
Basic Financial Statements
- Balance Sheets
Balance sheets are the key for showing the assets and the liability of a company. By having a balance sheet, a company will know which assets, what type of assets, liability, and equity.
- Income Statement
A company should know the profit and the loss in a report. Income statement helps to create data about profit and loss based on sales report. By having basic financial income statement, a startup will be able to create the next month strategies.
- Cash Flow Statement
A cash flow statement is also important to know the inflows and outflows to give budget limit for exceeding outflows while give additional budget for profiting sectors.
Benefits of Basic Finance
There are some basic finance terms for entrepreneurs to learn and delegate. However, it is all aligned with the benefit of having one financial system in the company. The benefits are:
- Create Effective Budgeting
Having budgeting and financial planning helps to allocate the cash and fund in the sectors where they are mostly needed. Any additional costs that can still be minimized will help to make the financial situation healthy.
- Show Actual & Accurate Financial Report
Another benefit of having financial statement is being able to see the actual and accurate financial report. Daily report of cash flow statement, income report, profit and loss report, will help to determine which strategies should be used next.
- Prolong The Business Success
Once any startups founders know the secret of their business, their main goal is how to sustain the success. One of the key is by having financial budgeting based on the report. The can allocate, create strategies, create budget efficiency in order to prolong the success.
Many startups failed to address this problem because they lack prolonged and adjusted strategies when they reach their peak. Getting out of all the cash to infuse the capital without counting the risk management definitely will burden the company and making it hard to thrive in the industry.
- Secure The Investors Trust
When a company has profitable result on its report and proven to have solid financial framework, it will help to attract new investors. Investors will help to bring additional funding to help scale the business and improving its sectors. By having a transparent, reliable financial report for startup, the company is already establishing trust for investors.
Start by compiling all the financial data necessary to bring in investors, especially profit and loss statement. Once investors know that the company is healthy, they may get interested to invest their money and help the business to reach its goals.
- Create Effective Delegation
Once entrepreneurs know what basic financial sectors they need to provide within the company, they will be able to delegate the roles effectively. Having some finance staffs to deal with all the necessary process will help to sustain the business.
For example, someone knows that he needs an accountant to create balance statement, while he also needs account receivable staff to deal with the loan and credit. By knowing which sectors need human resources, it will create effective delegation.
Knowledge alone is not enough, entrepreneurs who want to build startups should also know at least basic financial tools to deal with their business process.
Tools for Basic Finance
There are several tools for entrepreneurs to use to create financial reports and statements. The tools are as follows:
- Budgeting Tools: Some budgeting tools are YNAB and Google Sheet for online version
- Accounting Tools: Some accounting tools include Xero, Wave, and Quickbooks
- Cash Flow Tools: Float, Wave, Cash Flow Frog
- Financial Analysis Tools: Microsoft Excels, Google Sheet, Tableau
- Financial Planning Tools: Anaplan, Adaptive Insights, PlanGuru
Some of the tools are available for offline use while the others may use online system and save your data to cloud storage. It is better to use both for backups in case there is an error causing loss in offline data storage.
Conclusion
Entrepreneurs who are enthusiastic to build startups should master basic financial knowledge to create long-lasting company and to help them scale their business. Aside from knowledge, they also need to know at least some basic tools to use By having reliable and secure financial system, a startup will be able to attract investors, execute its innovations, and thrive in the industry.