6 Financial Tips for Tech Startups
By Dan Radak
Most tech startups initiate their life in the business world by having an outstanding idea and not a single clue about how to run a business. After all, tech startups are usually managed by IT guys and tech-savvy entrepreneurs and they are usually people who don't have enough experience in the business world as it is. The greatest obstacle here is, of course, the resource management. Knowing how to raise funds and manage their money afterward are complex tasks that not a lot of people are ready to undertake. In order to make this transition a bit easier for the IT-experts-turned-entrepreneurs, here are six financial tips for running your first tech startup.
1. Crowdfunding for your initial capital
The first thing you need to understand is that while crowdfunding may not be tech-exclusive, most tech startups do it nowadays, which means that the overall audience of these crowdfunding platforms has grown accustomed to it. Think about it, a person who has pledged a certain amount of money for several other startups on Kickstarter or similar platform is more likely to give some money to you, than someone who has never crossed this threshold. Other platforms like Patreon, are meant for artists and developers who require an overtime financial aid. In other words, a creator who plans to release their work in versions, chapters or episodes might prefer this approach.
2. Manage your cash flow
The next thing you need to understand is the importance of cash flow for your startup. Assets have value but they are usually tied in for most of the year, which means they can't be used to invest or reinvest in your company. In order to stay afloat, you need to learn how to control your spending, prioritize your investments and create a formidable reserve. One of the best practices that can be used to ensure consistent cashflow is using an online direct debit system to automate the regular payments of your repeat customers.
All of these are something that you will need at all times. As a tech startup, you can always turn to an app for a solution, as is only natural. Some are even capable of forecasting cash flow, thus giving you an edge over your competitors.
3. Automate your payments
Failed payments not only result in fines but also tend to ruin your credit rating, which is something that you simply can't allow. By automating your business' debt payments you can ensure that you never miss a deadline. Apart from resulting in a direct financial gain, you also get a more reliable payment system, which results in a direct reputation boost.
4. Employee benefits are not a waste of money
The problem with the mentality that perceives employee benefits as a waste of money lies in the fact that it negates the productivity boost that comes from high morale and motivation generated by financial gain. On paper, you're just paying the money that could be filling your own coffers but in practice, you're investing in not only productivity enhancement but also your talent retention and hiring efforts. After all, satisfied and loyal employees are by far the most efficient recruitment campaign.
5. Outsource your accounting
As the tech startup, it might be for the best to focus on your development efforts, which is probably what you're experienced in in the first place, and leave some of the other tasks to professionals. Outsourcing your digital marketing and customer service may stand to save you money in the long run, however, outsourcing your accounting is a top priority. This opens up so many possibilities, starting from grants you weren't even aware of to the tax deductions you would never have remembered on your own.
6. Think about your own finances
Finally, while you may be happy to see your company grow at the expense of your own personal finances, you shouldn't neglect your needs for too long. Sure, some may claim that the salary is merely a bribe they're giving you to relinquish your own dreams, however, you can't live on dreams indefinitely. Living on scraps until your company takes off may sound like the American dream but if this gets out of hand, your motivation might falter. Therefore, you need to remember to pay yourself if you plan to persevere in this business.
In many ways, running a startup is harder than running a major corporation for a simple reason of having to do everything on your own. Still, when it comes to finances, it might be wise to share some of this burden with others from day one. As you could see, this includes outsourcing, relying on apps and even looking for software options that are capable of automating some of your company's payment processes.