Good financial habits are the hallmark of a healthy startups and will make the difference between life and death. Here are our top seven good financial habits for healthy startups.
By getting good habits in place, you will dramatically increase the likelihood of startup success.
1. Spend less than you earn
Yes, financial financial advisors and wealth gurus have been giving this advice almost since the beginning of time. They’ve been saying it because of the simple truth that if you’re spending more than you earn, you’ll run out of money really quickly.
But what if you’re not earning anything yet?
Most startups begin their lives with founders living on a runway they have accumulated, and they don’t have sales yet. If that’s you, keep this lesson in the back of your mind and move on to lesson two.
2. Live on whatever is just enough
If you saw our last article here, you’ll know that living on whatever is just enough means exactly that. One of the best financial habits to create for yourself and your co-founders is to realise what exactly do you need in you life, and how much can you truly live on when you cut it back to the bare bones
Fun Fact: Check out Paul Graham’s blog on how startups should first aim to become ‘Ramen profitable’.
3. Keep your runway under construction
It might not seem like you have the bandwidth to do it, but you need to keep saving money. Your runway is what will keep you alive. This means that you need to keep it alive. Reinvest as much as you possibly can into your business and its savings. By doing that consistently, you will keep your runway healthy over time. A long runway means a healthy startup! It’s one of the best financial habits to build.
4. Keep dates with your bank accounts and financial reports
You know what they say: If it’s scheduled, it happens. Book time with your bank accounts every week. Make sure that you know exactly what your financial position is from week to week.
Read your your balance sheet and your profit & loss statements on the same day, and do it every week. If you don’t know how to read them, ask your finance guy or girl to teach you.
Doing these two things weekly helps you to build a watertight understanding of your financial position. When it’s consistent, you will be better able to spot unusual spending patterns and red flags. And you will also be in a better position from which to make decisions that impact your bottom line.
5. Nurture a relationship with a startup-savvy bookkeeper
So often, startups just go and find an accountant because they need to have one. The truth is, startup finance is very different from small business finance. What you need is a bookkeeper who knows the difference, and can guide and coach you if they spot problems.
The difference that this can make to your startup – especially if you don’t have a Chief Financial Officer – can be startling. A great bookkeeper will help you to understand your finances, and make sure that you’re on the right track. It’s one of the most important relationships you’ll create in your early days, so make sure you nurture it. You can’t just set-and-forget when it comes to your cash.
6. Keep bank accounts separate, and your personal finance in good order
Your personal accounts must be separate from your startup accounts. It’s the beginning of good habits, to account for your spending from the right place. It’s cleaner, it makes reporting easier, it makes it simpler to see how your startup is performing.
When you have your bank accounts separate, you’ll also be better able to see what state your personal finances are in. As they say, good habits start at home! If your personal finances are a mess, fix those problems. Bad personal financial habits will carry over into your business!
7. Take action when something isn’t right
One of the best habits you can build is the habit of taking action. Startup founders are great at just getting things done. Apply that mentality to your finances, too. If you see a red flag, follow it up immediately: Don’t let it wait.
That might mean having difficult conversations with your co-founders, doing some difficult self-reflection, or just cutting something out. Whatever it is, just do it.
Finance doesn’t have to be scary, and keeping your startup financially healthy isn’t difficult. But all the report reading in the world won’t help you if you don’t take immediate action to ensure you stay on the right track.
Need help creating good financial habits?
Or do you just not know where to start? At Standard Ledger we get startups. Email us to get focused guidance around your own financial habits and make sure that your startup stays strong.