Start-ups need to focus on mastering their budget over their business plan to provide the best indication of how they’re going and growing, the business division general manager at accounting software company Reckon One says.
Pete Sanders told StartupSmart start-ups faced different accounting challenges to established small businesses.
“It’s quite a different challenge for start-ups, as that first 12 and 18 months are all about survival, and you need to get through that to start taking off and sorting your business out,” Sanders says.
“So it’s even more important for start-ups to keep their finger on the pulse of how the business is actually travelling.”
According to Sanders, a realistic and regularly checked budget can be the best tool a start-up has to grow their business.
“I appreciate all start-ups are ambitious and optimistic, but be realistic about when the revenue is going to come in. You’re not cheating yourself, but you are the one who is going to get hurt if you get it wrong,” Sanders says.
He says depending on how rapidly a business is growing, both in cash coming in and associated expenses, should indicate how regularly to check and revise your budget.
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“You need to be constantly iterating on the budget. Review your budget every week or month. It’s unlike a business plan that you can leave on the shelf. Your budget gives you real guidance around how you’re going,” Sanders says. “Keep on re-assessing that budget, is it right going forward?”
An accounting danger time for start-ups can actually be in the middle of major growth, says Sanders.
“Cashflow issues can really kick in as the major issue when you really ramp up and start to grow. There is heaps of money coming in, but you need to make sure you’ve got the right expenses and work out how much you can spend to drive that growth,” he says.
He adds a budget can help you work out how to keep growing well.
“Understanding exactly what your spend is generating in terms of revenue allows you to work out what those key levers are to keep pulling so you can grow faster,” Sanders says.
Sanders says the key challenges for start-ups and small businesses are cashflow and compliance, and investing in a scalable accounting software and setting it up properly at the beginning will help non-accounting savvy founders.
“Accounting software will pay massive dividends in the future. The receipts-in-shoebox approach is so far backwards in terms of boosting your efficiency.”