3 Ways Startups Can Overcome Financial Challenges

New business owners still need help to address funding problems today. In a 2022 survey of roughly 490 founders, 47 percent of respondents cited lack of financing as a common reason for startup failure. 

The figure highlights the importance of relevant resources that new entrepreneurs can use to overcome their organizations’ financial challenges. This short guide outlines three crucial ways new businesses can resolve funding troubles.

• Choose the Right Funding Sources

To secure funding, you must choose the best funding option for your startup. There are several sources where you can get financing for your business. The most popular sources include:

• Bootstrapping or using your savings — You can use your money to finance your startup. You can borrow from family and friends, but this option has risks. You risk your associates’ financial future while jeopardizing relationships you have cultivated for years.
• Crowdfunding — This tactic provides you with funding but also generates publicity. However, crowdfunding requires thorough planning and a significant network. Moreover, some platforms keep the donations to themselves if you fail to raise your target amount.
• Angel investors — These investors offer money in return for a stake in your company. If you own a small store, this option might not be the best for you. However, an angel investor is the perfect funding source for tech startups, small plant owners, or other firms of the same scale.
• Venture capitalists (VC) — VCs invest in startups with the potential for rapid expansion. These professional investors can stake upwards of $2 million in a startup. They can also help guide business growth, and they will want to have power over the organization.
• Bank loans or credit cards — While these are viable options, you should note that these sources require collateral and will need you to have a good credit history. Also, remember that credit card debt comes with high-interest rates.

Ultimately, the best funding source for your startup will depend on your company’s size, needs, and industry. Study the advantages and disadvantages of all potential options before deciding which route to take.

• Ensure Proper Cash Flow Management

All wise entrepreneurs know that proper cash flow management is essential for the survival and success of any business. Since money is the lifeblood of a company, the business cannot operate without it.

Meeting your financial obligations to creditors, suppliers, employees, and other stakeholders can get overwhelming without proper cash flow. These are crucial players in your organization who need a steady cash stream to keep the startup running smoothly.

Without a background in business management, cash flow management can be challenging. Making the wrong decisions about when to spend money and when to save it can lead to serious financial problems. 

To manage cash flow, you need a good understanding of your company’s financial position. You must review financial statements and track expenses to ensure they align with the budget. 

Prioritize expenses that are critical to the business’s operations. You can delay payments on non-essential bills until your startup has a more stable cash flow.

• Spend Funds Wisely

Just because you have secured funds for your startup does not mean your business will automatically be a success. Smart spending is crucial if you are aiming for longevity and significant profits.

With a proper budgeting system, you can make smarter decisions that benefit the company. Setting up a realistic budget outlining your estimated income, expenses, and cash flow will help in decision-making and clarify the current financial condition.

To succeed, you will need a chief financial officer or an accountant who can do the following for your firm: 

• Manage finances
• Handle tax obligations
• Offer useful financial advice
• Recognize growth opportunities

Faris CPA’s professional accountants can offer experienced tax help to small to medium size businesses. They can also help independent professionals and individual investors. Their expert financial advisers provide the highest quality tax and accounting services so clients can pay their taxes and avoid penalties.

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