When an entrepreneur starts with his project, it is normal for the founding team to handle all the finances of the project . This is because they do not know how to make a good financial control for companies.
The consequence? Many entrepreneurs are surprised by the lack of cash or cash flow when unforeseen events occur or when they do not control how efficient they are with their spending. As a result, nine out of ten startups die because of lack of financial liquidity. That is why we need to control the vital indicators to know the survival of your startup and to have a good financial control.
That’s why cash flow forecasting tools are key for any company, because you can control how much money is coming in and going out, and you know how much money you have in your bank account. In other words, fuel and range indicators.
But do you want to know how to do it?
Financial control for companies: 4 actions for good financial health
1. CHECK THE BOX
As we have mentioned, we have to go beyond how much cash we have in the bank, as it can be detrimental in the short term. In order to make decisions, cash projections must be taken into account. We have to control our burnrate and runway, which will tell us how many months of life the company has left.
Therefore, it is important to keep our expenses under control and to consider a safety deposit box in case of unforeseen events.
2. PROJECTED EXPENSES
At the beginning, a very common mistake (sometimes due to lack of time, sometimes due to lack of knowledge) is not to project expenses. If we do not project them, we will not be able to foresee the behavior of the cash flow and, consequently, we will not be able to make decisions to make a more efficient business model.
It is also interesting to do the inverse: “What would happen if we left our planned expenses stable while we suffered a downward deviation in our sales? Many startups make a sales plan with expectations that are very difficult to meet, resulting in a company that does not generate cash at any time, or that needs more time than they think to be able to generate it and be profitable.
3. HAVE A FINANCIAL PLAN
Another problem that start-up projects often have is the lack of a financial plan that includes a financial control for start-ups, even though it is one of the company’s most important documents. If you don’t have one, you won’t know if you are deviating from your goals or, in other words, you won’t know if you are growing in the right way.
You have to go beyond having a perception: you need a control of cash flows and projections to make decisions. Having a financial plan will help you avoid financial mistakes and help you know the causes of deviations (so you can apply corrective measures in time).
4. PLAN YOUR ROUND AHEAD OF TIME
Keeping cash under control will tell you how much runway the company has, i.e., it will tell you how many months the company has before running out of cash. This indicator will tell us when we will need financing, so we can plan the round with enough time to negotiate properly.
In other words, if you have a tight runway, it means you have little time and margin to negotiate. This may result in the startup eventually agreeing to unfavorable terms out of necessity. You have to keep a good financial control for companies in order to be efficient.
In short, it is necessary to have a good cash control as it will give us indicators of how long our company has a life span and how efficient we are with our expenses.
In order to perform a correct financial control for companies and enjoy good financial health, it is essential to have a good cash flow management as well as cash flow forecasts. With Orama you will be able to automatically control your cash flow in order to move forward with your financial plan.
Book a demo with one of our specialists and start having automated cashbox control and forecasting.