What is the number one reason to organize your accounting and finance operations as a startup?
To help you appreciate the need to organize your accounting and finance operations early in your business lifecycle, we asked startup founders and business owners this question for their best insights. From making cash flow management easier to enabling easy access to records when needed, there are several reasons that would help you see the importance for your startup to be financially organized right from day one.
Here are eight reasons these leaders get their startups financially organized right from the start:
- Make Cash Flow Management Easier
- Ensure Your Business is in Compliance With All Applicable Laws and Regulations
- Establish Order and Guidance
- Make it Easy to Keep Track of Your Finances as You Grow
- Determine Your Profitability
- Gain Greater Understanding of Your Business' Financial Health
- Ensure Long-Term Financial Success
Make Cash Flow Management Easier
Organizing accounting and finance operations early in business is a great way to start managing cash flow properly. One thing that is sure is that the cash flow in and out of business will get more complex as the business early. Setting up a working system will help avoid the associated mess that can result from poor cash flow management. With an established system in place, even when financial operations become complex there will be an easy follow-up procedure for all the financial transactions in the business.
Ensure Your Business is in Compliance With All Applicable Laws and Regulations
A well-organized accounting and finance operation is critical to the success of any business. By organizing your accounting and finance operations early in your business lifecycle, you can ensure that all financial transactions are accurately recorded and that your business is in compliance with all applicable laws and regulations.
Establish Order and Guidance
Companies need to organize their accounting and finance operations as early as possible. This will determine the course of your business and how things will be run. Ensure that the accounting and finance systems are up to date and audited. Running a check in balance is a healthy way to determine if things are in order. Work with professionals to establish a smooth running system and give priority to these aspects of the business.
Make it Easy to Keep Track of Your Finances as You Grow
By organizing your accounting and finance operations early on, you'll also be able to make better decisions about how much money should be spent on marketing versus product development. You'll also be able to invest more wisely in equipment and supplies as you scale up.
Determine Your Profitability
When you are starting your business you will (often) incur more costs than than income for a period of time. That is fine, as you hopefully have a predetermined amount of available money before you started the journey. For SaaS businesses, in order to determine the profitability of your business it is crucial to keep track of your finances, so that way you can determine helpful financial rations like your LTV:CAC. This is short for Lifetime Value : Customer Acquisition Costs.
When you start getting clients you are able to calculate the LTV of a customer, if the payments are recurring you will need to use a benchmark multiplier. The Customer Acquisition Costs are a total of all the costs you had to acquire customers, divided by the number of customers acquired. When you put those two numbers together, your LTV should be higher than the Customer Acquisition Costs (as otherwise you will keep losing money). A healthy LTV:CAC ratio is 3:1, a great one will be 5:1 and lets you know you should invest more in sales and marketing in order to grow faster.
Gain Greater Understanding of Your Business' Financial Health
Organizing your accounting and finance operations early in your business lifecycle will give you a greater understanding of your business' financial health. If you wait until you're in the middle of a cash crunch, it's too late. You'll be scrambling to figure out where your current cash flow is going, which is difficult to do. By organizing your accounting and finance operations, you'll be able to see where your money is going and why, and you'll be able to make better decisions about how you can use your money more effectively. This will help you avoid cash crunches and keep your business running smoothly.
Ensure Long-Term Financial Success
Early organization of your accounting and finance operations will give you a better understanding of your business's overall financial health. This will in turn help you make more informed financial decisions for your business. It will also help you save time and money down the line. Having a clear understanding of your financial picture from the start will help you avoid making costly mistakes that could set your business back.
Overall, organizing your accounting and finance operations early in your business's lifecycle is the best way to ensure long-term financial success. It will give you a clear understanding of your finances and help you make sound financial decisions for your business.