Question: Name one thing you wish you knew about money and finances while starting up. Did it lead to a mistake?
Save Some Funds for Later
"Getting money in the door is great, but high expenses can blindside you if you're not putting money away for a rainy day. Having a buffer in the bank gives you confidence that you can keep the doors open long enough to get more cash into the business, and it also helps reduce entrepreneur stress."
Pay Those Bills On Time!
"I started my business as a 22-year-old kid right out of undergrad. I didn't understand the importance of keeping track of my bill payments, especially student loans. As a result, I routinely paid them late, hurting my credit score. This hindered me later on as I wanted to access capital to grow, but was not able to by traditional means. I recommend I Will Teach You to Be Rich by Ramit Sethi."
Learn QuickBooks Quickly
"In my last startup I left the bookkeeping up to my partner because he claimed to have basic knowledge with QuickBooks software. Unfortunately, his lack of expertise created thousands of dollars in accounting bills (not to mention the wasted hours). If I had known more about the program, I could have cross-checked his work and corrected course. Bookkeeping is too important to overlook -- learn it."
Hire an Awesome Accountant
"There are a lot of solid online solutions that try to replace having an accountant, but ultimately nothing's better than the real deal -- and the real deal can often be found for a great price, as long as you ask around the tech community for someone who fits the bill."
Pay Yourself a Market Rate Salary
"Entrepreneurs tend to undervalue and underpay what we do at our company. Unfortunately, this creates a fundamental flaw in all of our financial models, thus clouding our ability to make smart decisions from our numbers. Even if you can't afford to pay out cash yet, have your accountant track it to give you a clear view on the company's profitability and financial health."
Understand How Cash Flow Works
"A pile of account receivables is not the same thing as cash in the bank. Having learned this painful lesson many times early on in my startup days, I always stress to other startups to hold off on new hires or expansion plans until the cash is actually in the bank. It's painful when you hire someone due to a big pending payment, only to have it delayed, and then telling them, "I can't pay you.""
Keep Consistency in Billing Terms
"We have small and big partners, from local boutiques to the Major League Baseball Player's Association. When we started Modify, we had stated payment terms, but were always flexible with partners. Ultimately, the lack of clear policies significantly impacted our business. Not only did we create more work through negotiations but we also lost track of receivables, which puts us at a risk with cash."
Include an Interest Clause
"It's important to include an interest clause in contracts so that a company knows they will face a penalty if they do not pay you on time. Otherwise, there are no repercussions to them sending you a late payment, since it is unlikely you'll take legal means to go after them for it. If they know they'll have to pay interest if they're late, they have incentive to get you your payment on time."
Theory and Practice Aren't Parallel
"I majored in finance at NYU, worked as an investment banker on Wall Street for two years, then worked as an associate at a venture firm investing in startups. And when I started my own company, I didn't know how to manage my money. The reality is this: my financial models were theory; cash flow is reality. We ran into some early problems by spending on ''future earnings'' that didn't yet exist."
Remember Regulatory Obligations
"If you're not clear on your regulatory obligations, beware of missed deadlines, costly fines, and time wasted attempting to correct these issues. Startups are responsible for more than state and federal taxes; look into franchise fees to the state in which you are incorporated or established, state and local business licenses, 1099 filing, and 409A valuation for companies with employee options."
Expansion Has Hidden Costs
"I wish I’d known about all the additional costs that come with hiring employees. There are health and retirement benefits, taxes and many other miscellaneous expenses that totaled to an amount that was quite surprising. Learn about this early so you are able to calculate exactly how much new employees will cost."
Always Budget and Plan
"Even if you have little resources and capital, it’s still important to have a plan and a budget. Your business plan can be basic -- as little as a simple list of goals for your venture. Of course, you'll need a more detailed plan if you’re soliciting investors. The Small Business Administration website offers a great basic business plan template."
Profit and Loss Aren't Everything
"I wish someone had told me that P&L isn't the only indicator for the health of your business -- looking at and managing your cash flow is at least a weekly activity. Just because you've got big contracts coming in doesn't mean you're safe. Iif you ever want funding, you have to be vigilant about managing your cash flow and keeping your daily account balances high."
Get Acquainted With Tax Deductions
"When starting up, I wish I better understood tax deductions. That's the reason I worked with a tax attorney to build a definitive tax guide for entrepreneurs. Taxes are complicated and intimidating, but having the right tools makes it easier to keep track, to spend money wisely, to maximize deductions and to stay out of trouble with the taxman!"