Importance of Financial Management for Startups and Small Businesses

2 Mins read


Negative cash flows and losses are common for startups in the initial period. The business managers and owners need to have proper financial management to overcome initial fund issues and run the business and mature it into a profitable one in a short period.

You need to ensure sufficient funds on hand to manage your startup. It is necessary to pay suppliers, employees, and for working needs in the initial stage. Therefore, financial managers need to make provisions for negative cash flows and need to get funds from external sources at attractive interest rates or use internal accruals from other businesses. Sound financial management is essential until the business turns profitable. 

Budgeting and planning for startups

It is necessary to ensure sufficient cash as your business starts growing and commences operations. You need to make a budget for your business considering requirements like spending on product development, trials of new products, promotion of new products, production of developed products, procurement of raw materials and semi-assembled materials for your products, etc. 

The financial manager can decide either to fund using internal accruals or borrowing funds from external agencies like banks, private equity funds, debentures, etc. It is necessary to source funds at reduced interest rates and manage the funds efficiently to make your business profitable. 

Maintaining cash flow

The mature business needs to sustain its operations using the cash generated from the sale of finished products to customers. Therefore, financial management involves the efficient management of funds for running the business. You can get support from Joseph Stone Capital for managing your finances in small businesses and startups. 

Some financial managers delay payments to suppliers to improve cash flow and service borrowed loans. Delaying payments to vendors beyond a certain period damages relationships and demands stricter payments like on-spot payment, advance payment, the opening of LC, and increased prices of products. It affects your business and you will lose the confidence of vendors and suffer from reduced profitability. Some financial managers are meticulous in collecting funds from customers. They need to ensure payments to the vendors in time.

Making tax payments on time

Any delay in paying taxes will attract heavy penalties. Paying interest for borrowed funds is also essential to avoid penal interest. The financial managers should be prudent in handling tax and servicing loans.

Financial managers also play a key role in investment advice. Any wrong decision may jeopardize the business. Therefore, only accumulated cash after paying all the taxes and interests needs to be parked in avenues that offer interest for the company for its future needs. The financial professionals at Joseph Stone Capital will help your company in finding the right avenues to park your surplus funds and earn attractive returns.

Keeping some funds for emergency needs

The financial manager needs to keep some funds aside for situations like unexpected slow down due to pandemics, wars, or natural calamities. They should not overreact to the slowdown and suggest retrenching talented employees to save money. It reduces the morale of the employees. Also, any drop in spending for marketing or production reduces profitability. Therefore, running a business needs meticulous financial management.