27 Sep 2017
We understand that not everyone who starts a business is going to have experience dealing with finances. So we asked our friends over at BluSky Chartered Accountants what the common mistakes they see working with startups are, and how to avoid them. Here, Dave Gibson, Director, shares his advice.
#1 Thinking it’s someone else’s problem
Business founders come in all sorts of different breeds, but at startup time in particular it’s easy for any founder to ride the wave a little. Nothing has gone wrong yet, you can think about that exciting app, service or product, and all the boring paperwork can wait, you don’t want to think about it and don’t feel you have time. Stop right there.
You may want to get someone else to do your finances, but it’s your business and it’s your responsibility. Make sure it happens - properly. If you’re in the ‘terrified’ camp, don’t run away from the problem. Remember the numbers are your friend. Get them right and they will tell you the truth. If you’re not sure what to do, get help.
#2 Underestimating the value of process and timely, correct financial information
Start-up businesses are often fairly simple in construct and the paperwork process is simple as well. But assuming that you’re looking to grow and scale, this is exactly the time when you should develop and implement robust financial processes whether it’s around reporting and forecasting, or credit control.
The early introduction of a process can reduce the energy consumed by adverse circumstances.
#3 Thinking you can DIY
You don’t have enough cash to go around. That’s not unusual, but as with every other function needed to successfully scale a business – development, marketing, sales – with finance you need to apply some expertise from the very beginning. Otherwise you run the risk of having to unravel a set of bad habits and giving yourself problems later on that you don’t need.
Take advice. Accounting can be complex, and tax more complex still. There are 2,500 pages of tax legislation…and that’s just for VAT!
#4 Not having a living, breathing forecast
So you have control of NOW, but what about the future? Running a business isn’t just about what’s happening today, it’s about anticipating what may happen in the future and working to get the best out of that situation. A regularly updated forecast will enable you to anticipate the weak points in your cashflow – and motivate you to take action. When things go well, it will also give you the confidence to fund that marketing project, hire that extra much needed employee, or scale up offices.
You cannot make appropriate business decisions without this information. This isn’t just about startup or scale-up mode either. Run a business?? Then run a forecast.
#5 Not understanding what you have
You may not be a financial expert, but that doesn’t mean you shouldn’t understand the key financial indicators for your business and how to read them from the information you have. Ask. Understand. Be persistent.
Work with a financial services provider that understands your business, and gives you relevant information in a clear format.
If you're a founder and are thinking about raising investment, contact us to arrange an informal chat to find out more.