3 vital tips for better expense management at startup companies

From designing business cards to choosing a name and setting up a web site, startup businesses are like toddlers – they can hardly be left alone for a minute. The more work you do, the more the work still seems to pile up. But in the heat of the here and now, never lose sight of three vital factors that will help your company grow and mature just like a well-nurtured toddler…

If you’re in the first couple of years of running a startup company, or haven’t even really started yet, you’ll no doubt have read a great deal of stuff about how to go about it. We hope it’s been helpful.

The trouble is, sometimes there is just so much information that the really important messages about small business expense management get lost, swallowed up in all the other ‘noise’ going on around you.

So here are our three top tips to make your expense management as effective as possible; a distillation of the really important things about money management and the cash at its heart that every emerging business must focus on.

1. Earn it No matter what your business does, it exists to earn money to pay salaries for you and your employees. In the long term that’s what it’s for. (Though in the short term a salary for you might be no more than an aspiration; in its earliest days, the needs of the business must come before yours). There are other things your business must be aware of and act on, such as customer service, product quality, corporate social responsibility, and maintaining health and safety standards, for example. They all have a bearing on the ability to pay the salaries, but earning a living is at the heart of it all, so generating revenue is what your company must do.

2. Keep it When you’ve worked so hard to put funds into the company bank, the next step is to work in a way that avoids squandering what you’ve achieved. Earning it was hard; letting it slip through your fingers is easy.

It’s important to develop a ‘thrifty mindset’, and to be an effective expense manager. Be lean in your operations. In the good times, set cash aside, because it’s a near certainty that worse times will come, and that’s when you’ll appreciate having a financial cushion to protect you until the good times roll again. Therefore, put up with the wobbly old desk for a little while longer…

Our founder Sunil Nigam talks of the early days in business being a rollercoaster, with good times following bad, and vice-versa. There’s little doubt that the experience will be the same for you.

3. Control it The old adage ‘knowledge is power’ is certainly true of expense management for small and startup companies. What you’re spending can easily be controlled with the use of online expense management software like Solo Expenses. Because it records spending in real time, you’ll always know what business expenditure is going on and there will be no nasty shocks at the month end – or at least there shouldn’t be, if the software is being used diligently.

Tighter control can be achieved by linking our expense manager app to a company credit card, so there is no danger of personal and company money becoming mixed. The software can be downloaded here. And we’d confidently predict that the modest charge will be outweighed by the savings you’re able to make with the information it delivers, so using our software could turn out to be a way of increasing revenue. What’s not to like?

Other useful ways of controlling the money in your business you might not have considered include these:

  • Ask for a down-payment from a new customer (or even complete payment up front; there’s no reason for your company to be a source of free credit for a client)
  • Invoice promptly. A delay in sending out an invoice is a delay in payment – only this time it’s you that’s delaying the payment.
  • Find a name. Know who you need to talk to if you need to chase a slow payer. Being abandoned in the client’s payment system is a sure way to get paid later rather than sooner.
  • Control stock carefully; too much of it ties up too much money; too little could mean lost sales.
  • Check your invoices. Putting errors right can take months.
  • Be careful who you deal with. From credit checking new clients to limiting what you do for those who are slow to pay, you should always work to reduce the risk of others harming your company finances.

The bottom line is that it’s your money. Never be embarrassed about talking about it, and asking for what you’re due. Over time you’ll find yourself able to work for good people who value your work and recognise their duty to pay you promptly. That’s the way to a financially sound business.

Though idle petty cash accounts for only 1 to 3 percent of total current assets, it is imperative that it does not dry up. Like blood in the human body, there has to be a constant flow in order to sustain the business at all times. At every step of the way, startups need to be prepared for financial curveballs that appear in the garb of delayed invoicing and disbursements, indefinite floats and flawed go-to-market strategies. Operating in a region where Cash On Delivery (COD) has become the preferred mode of payment also adds more perplexing challenges to the mix. Only a handful of startups are getting it right, and live to tell the story.

Cash ManagementCash management 101
Though critical, this practice is not as complicated and alarming as we have historically been led to believe. It is actually quite simple if entrepreneurs are aware and equipped to preempt financial pitfalls:

Culture of frugality
From the get go, establish a culture that encourages thrift. While the startup is still finding its feet, spending happens faster than revenue is raked in. Therefore, it is in the company’s best interest to be as lean as possible in early investments. Reserve cash for ‘cold winters’ such as pricing revisions, bad debts or slow sales. It is also a good idea for product companies to manage their inventories wisely. Too many products in stock can lead to unsold pieces and too little could mean lost sale opportunities.

What you can do: Take a leaf out of the best practices of Decluttr Me, a startup that champions lean spending. Rather than outsourcing their artwork to exorbitantly priced designers, they took the DIY route with unconventional services such as Fiverr and Canva. Hire a lean team that is willing to roll up its sleeves and go beyond the call of duty, rather than unnecessarily over staffing the company during its fledgling days. Resist the urge to splurge on frills such as expensive office furniture and decor when you have bigger financial commitments to take care of.

Invoice faster and better
Studies show that slow-paying customers are posing the biggest challenge to startups’ cash flow. For a startup to flourish, it is essential to shorten billing cycles in order to cover for any delays in recovering costs incurred.

What you can do: Sometimes, asking for a down payment before the commencement of a project can make entrepreneurs uneasy. But building an honest relationship with clients is the key to helping them understand the value you add to their businesses through the costs incurred in the process. When they do adhere to your policies, reciprocate their cooperation with a discount or incentive.

Let automation software do the heavy-lifting for you!

There is little place for nasty surprises in startups. Many a time, entrepreneurs set out believing their offering will take the market by storm. While some revel in the success of their ideas taking wings, the others are left to wonder where they went wrong. Even if you have put in immeasurable effort in bringing your idea to life, there is always a chance that it may not make the cut. Forecasting cash flows is predictive of such contingencies and helps to make suitable pivots to business strategy. It is also a credible method to build investor confidence in one’s business.

What you can do: Disburse funds to employees across geographies for incidental expenses, track its use in real time and settle petty cash accounts with 100 percent accuracy. With the use of smartphones entrenched deeply in the way we do business, it is possible to predict, monitor and report cash flows with the click of a button. Imagine the potential of cash management without dealing with physical cash in the first place. With the adoption of automated solutions to manage petty cash, it can now become a reality.

In summary, good cash management is king and speaks volumes about an entrepreneur’s understanding of his/her business. The benefits are evident for startups who have consciously welcomed technology into their folds, to do the job. Apart from balanced cash flow in the business, it frees resources from the mundane rigmarole, such that they can be allocated to more productive functions. Therefore, an automated approach to cash management is quickly emerging as an efficient way to tide over rough patches and to re-emerge profitable for years to come.