Every business needs investor money to get up and running, and high growth start-ups require more money than most. Having a good idea is one thing, but that idea needs to be turned into something that can generate revenue – whether that be a product or a service.
“Know your numbers” is probably one of the most important rules for founders and CEOs of start-ups – if you don’t have a grasp on the finances, securing future funding (and long term success) is likely to be challenging. You must have visibility and control over the money leaving the business and have clear KPIs to track company performance. These KPIs might include sales performance figures or conversion metrics, but spending needs to be closely monitored against performance KPIs to ensure the business is scaling with an acceptable cash burn rate.
Receiving investor money is one thing – putting it to work is something else. The objective for most start-ups is to scale up as fast as possible. To do this money needs to be allocated to the areas of the business that will help accelerate growth and deliver the results expected by the investors. Sales and marketing are two key areas that typically scale, but the product team also needs to scale in order to innovate and deliver the best possible solution to meet customer needs – and keep on innovating to ensure competitors can’t catch up.
As the business grows, it’s important to embrace technology to automate many of the manual administration tasks that beset finance and operations teams as complexity grows. Many software solutions exist, but the starting point should be an adequate accounting software solution that can grow with the business. To support this there are many business tools available that leverage the accounting platform as the system of record to help with a myriad of tasks – from forecasting to CRM to spend management.
Finding the balance when spending business money
As a founder or CEO, there’s a fine balance to strike when it comes to spending money. You need to have complete control over your company’s spending and financial habits, but you also need to empower your staff to spend where needed. If staff can’t spend on the things that they need, they could be missing important opportunities, having their productivity hampered, and generally not being able to progress their projects, all of which would damage the business as a whole.
But there are ways to make sure your staff have the money they need to spend, without having to wade through piles of receipts. Firstly, instead of giving staff credit cards, give them pre-paid cards with specific budgets depending on their needs. This gives employees the autonomy and flexibility that they need while giving finance unprecedented control over how much they can spend (and where they can spend it). The next thing is to make sure that your staff can access these cards when they need them. This might involve giving every employee an expense card, which is fine as long as there are limits and controls on how each card can be used.
Next you need to automate the administration of expense management by removing the points of friction and digitising the process. The traditional, manual ordeal of filing receipts can be a big drain on time and productivity (both for the employee and finance once expense reports have been submitted), and can even be enough to stop people spending money on the business (or indeed just spending from their own bank accounts). The implications of staff members being forced to pay for company expenses and be reimbursed are vast and often underestimated, including damage to trust, morale, and financial wellbeing.
It’s essential to set up a clear expense policy and have an expense management system that supports the policy. Setting pre-emptive controls on how employees can spend money is far better than dealing with the problem after the horse has already bolted – i.e. after the money has already been spent. Once the system is up and running, you’ll be able to quickly review and analyse spending data. By gathering more data and visualising it in reports, you can gain valuable insights into the financial health of your start-up and make better business decisions.
Running a successful start-up requires so much more than a good idea or product. How you spend your funding and manage your cashflow are key indicators of how successful your business will be. The key is not just to focus on the money coming into the business – ensure you have complete control of the money leaving the business too! Proceed with necessary caution, bring in the right tools and people to help you, and keep an eye on your numbers – only then will you be in with a good chance of making your funding go further.
Darren Upson is the VP of Small Business Europe at Soldo