You have a great idea but your startup is beginning to suffer. Maybe it isn’t launching as fast as you hope or you’re running low on cash and need to approach an investor. If your finances are a mess, however, no investor is going to be interested. It’s important for all startups to get their finances in shape before they approach an investor. Fortunately, there are some tips and tricks about how you can spring clean your finances so that you can be on your way to more money and business growth.
Get an Accounting System in Place
In order to have true financial clarity, you need to have a quality accounting system. If you don’t have one, then you can’t collect data, create the right documents or reports or run your numbers. Without this information, you’re not going to be able to hold much of a conversation with investors. Investors will want to see a profit and loss statement, cash flow statement and a balance sheet to show the health of your business.
Analyze Your Revenue
Startups need to make sure that they know how to analyze revenue. You need to be able to run your numbers and understand what is going on with them. For instance, how is your revenue generated? Where does it come from? When you talk with an investor, you should be able to explain what the expense structure looks like. You need to be able to look at your budget in terms of actuals.
Use an Accrual-Based Accounting System
When a company starts out, it often uses cash accounting. This form of accounting only inputs income and expenses. However, you should probably consider accrual-based accounting. This type of accounting method has revenues recognized when it’s earned not just received.
Make sure that you understand your metrics. You need to be able to talk with investors about your burn rate, churn rate, gross margin, run rate, customer lifetime value and MMR. Investors need to know that you understand what you can tweak and cut and how much flexibility you have.
If you’re about to talk to an investor, make sure that your finances are not a mess. Most startups need help with financing. Likewise, it’s easy for beginning businesses to end up with messy finances. This is especially true when you are not used to handling the types of finances involved with companies. That’s why there are tips to cleaning up your financial situation.