Ah, funding. When you finally receive an injection of capital which signals that your startup has made it to the big time. After months (and even years) of funding with your personal savings and loans from family, you finally have cash to really move your business forward.
Startups can often have the same mindset as athletes that come into a lot of money. After running lean for so long, an influx of cash can often cause you to waste some of that investment. Buying things you don’t really need and failing to budget according to the amount received, can cause you to drain funds rather quickly.
It is said that the number one job of a founder is not to run out of money. Many startups run in the red for years, but that doesn’t mean they don’t have the investments to keep them running. If you are a startup and want to make sure that you are able to stay running until you become profitable, here are a few things that can help.
1. Hire An Accountant
I don’t care how good you are with math, you must hire an accountant to help manage your early costs. Roofers don’t fix their own houses and plumbers don’t unclog their own toilets. You are too busy with day-to-day operations to be stuck behind a desk crunching funding numbers. Hiring a professional will help keep track of every dime you spend.
The investment is well worth it. Accountancy probably isn’t your specialty and you may be taking at least twice as long as a professional would to keep your books in order. Therefore, take into consideration how much time you will have free to spend on other aspects of the business using your expertise. In addition, an accountant will be able to track tax deductions which will result in less tax penalties at the end of the year. These alone are good enough reasons to bring on a professional.
Keep in mind that you don’t need to hire someone full-time. An accountant is a position that the Young Entrepreneur Council recommends outsourcing if you are a startup.
2. Budget for Marketing
Bill Gates is attributed with providing one of the greatest quotes used in marketing today.
“If I only had two dollars left, I would spend one dollar on PR.” – Bill Gates
Gates is an entrepreneur who is familiar with running a bootstrap startup. Now he is valued just shy of $100 billion. Yes, I said billion. It’s obvious that Gates believes strongly in promoting your product in order to get it in front of the consumer.
You need to make sure that you budget for PR. Develop a good media outreach strategy so that everyone is familiar with who you are and what you do. Even if you are not ready to go-to-market, it is still important to brand yourself. It can even help if you need to reach out to venture capitalists for additional funding.
3. Be Smart About Bringing New People on Board
Hiring an accountant is mandatory but everyone else is not. It is highly recommended that you place a hold on hiring for at least 30 days. One reason is because business growth does not necessarily mean expanding your team. Sometimes startups feel they need to fill future positions and often hire and pay for people they don’t really need. As payroll is a huge line item for any business, keeping only the essential people will help keep you from running through your funding.
Expanding your employment base too early can also isolate those who were there from the beginning. You start to create a new culture among employees. Those who were truly there helping you while bootstrapped, could feel left out and start to produce less.
4. Track Your Expenditures and Returns. Think of Future Funding
If this is your first funding round, it will unlikely be your last. Few businesses move to the black after their first round of funding. That means you will likely be asking for more in the future. If you are unable to show how you spent your first large cash infusion, it will be difficult for you to convince venture capitalists to give you more.
You obviously cannot track returns on things such as office space expenditures or other tangible items you use in the office. However, you can track things such as the return on investments for marketing and advertising. Show your investors the value you got with their money and it will help you when you need to ask for more.