An infusion of capital—via a venture capital investment, loan or accelerator program—helps a business grow. No matter how you got the cash infusion, it’s time to jump into action so that you can quickly deploy those funds.
As the founder of LendEDU, an online loan marketplace, I’ve worn those shoes. But here are five financial steps we took after we got funding that made a big difference in the growth of our company.
Open a Business Bank Account
Think you can use your personal bank account and credit card in order to pay for your business expenses? That’s a bad move and one you will wind up regretting. The first reason you’ll likely regret it is that it will become too complex to do your accounting and make sure that you separate your business and personal expenses.
But another reason that not having a business bank account is a bad idea is that you could compromise yourself if your business is a corporation or LLC. If you’re ever sued, someone could argue that there is no distinction between yourself and your business and you could become liable in a lawsuit. In addition, not having a business bank account makes you look unprofessional to clients and investors.
You’ll also want to get a business credit card because by getting one now you’ll be able to start building your business credit right away. This is critical in case you ever need to borrow money for your business in the future. Having great business credit will ensure that you’re able to borrow more than you might personally qualify for and that you’ll get better terms on your loan.
Set Up Accounting Software
Do you save all your receipts in an envelope and then stress out at the end of the year or month about having to input them into Excel in order to do your taxes? You can’t do that with your business. You need to have an up to date view of your finances at all times so that you can better understand things like your burn rate or your profit margins.
It’s pretty simple to get this set up. Quickbooks is a great option for business accounting software and is easy to use. You might also want to get a bookkeeping service like Bench which does your accounting for you and provides great visual reports that allow you to see your business’ financial position.
Calculate Your Burn Rate
Your burn rate is how much money you’re using of your available cash in excess of the income you bring in every month. If you’re a new startup, you might be bringing money in, but you’re likely also spending a lot of money. For many companies, that means that early on they are spending more than they’re making.
It’s important for you to know how much more you’re spending than making so that you can understand how long your company can continue to operate without either increasing revenue, reducing expenses or finding new sources of capital.
New businesses fail every day and part of the reason is that they run out of money.
Don’t let that happen to your business. If you know how much you’re burning through, you can start looking for new sources of money or tweak how you’re spending money so that your cash lasts longer.
Establish Financial Key Performance Indicators
A key performance indicator (KPI) is a way for your business to evaluate whether you’re successful at a particular business objective. KPIs are essential. Stay focused on the things that are most important to your business because they’re most likely to contribute to their success.
For example, if you run an online business a KPI might be the traffic your site gets or the number of new subscribers or customers you get per month. It could also be the number of returning customers or the cost of acquiring a customer versus the amount each customer spends.
Running a business is stressful and often you can be pulled in many different directions, but KPIs allow you to focus on and track the things that are most likely to add value and be important to the success of your business.
Organize Your Business Plan
When it comes to getting funding the reality is that you usually don’t get as much as you thought you needed. So, your business plan should reflect expenses and goals that could be outside your current capacity. It’s critical to take a look at your business plan after you get funding and adjust it to reflect your current capacity.
Maybe you need to delay the launch of a secondary product line and focus your resources on the product line with the highest potential profit margins. Or maybe you need to get creative with how to deploy your marketing budget.
The worst thing you could do is try to achieve the same goals that you had in your original business plan with less money. You’re likely to underfund your projects or run into cash flow issues. You’re better off doing fewer things, but doing them well.
Nate Matherson is the CEO/Co-founder of LendEDU. LendEDU helps consumers learn about and compare financial products. LendEDU was originally founded in Cedar Rapids in 2014.