For many people, the legend of the wildly successful startup company in the 21st Century has come to signify both success and passion. Figureheads of the startup movement like Steve Jobs have always been compelling characters in the world consciousness of the last 30 years, but in the wake of success stories like Mark Zuckerberg’s Facebook, such mavericks have become the role models of a newer, younger generation.
So what are the financial moves a startup needs to make to succeed in the business world? Here are just six that will help a startup reach its full potential.
1. An Understanding between Partners of Financial Responsibility
A serious question to be answered when creating a startup is how funds for the company are going to be used. Are founders putting in their own cash to get the company going? How much is each founder contributing? Are “angel investors” such as family or friends putting in money? Understanding how payments for investing will be divided after profits are made is a sure way to avoid offending major investors and to maintain an environment of fairness.
2. A Good Grasp of Payment Procedures
One of the challenges of creating a successful startup is that pay rates can significantly change over the course of a company’s development. A CEO’s salary might be vastly different from one year to the next, especially as growth creates new income. Having an understanding with partners about who will make what and whether the company could be bought out or made public will help entrepreneurs avoid significant conflict. Nothing ruins partnerships more than regular disagreement over financial issues.
3. An Understanding of Tax Responsibilities
Like having a lifejacket in a boat, no company should go without a thorough understanding of how to pay taxes. Tax forms are notoriously difficult to understand, and owners may struggle to figure out what to pay as their profit figures mature. It’s important not to let a misunderstanding of tax procedures result in an audit or financial ruin.
4. Having a Good Source of Legal Advice
While everyone wants their startup to be a success story, the truth is that entrepreneurs should be prepared for any financial event, even negative ones. This is especially true when it comes to issues surrounding bankruptcy. A good bankruptcy consultant will not only guide owners through the process of what to do next, they will significantly mitigate the stress and time of bankruptcy procedures. An Ogden, Utah bankruptcy attorney advises small business and startup owners to learn as much as possible about how bankruptcy will affect their business.
5. Know Where Profits are Going
If you’re a business owner, you’ll quickly find that, when profits come around, things can become confusing fast. Knowing ahead of time what you’ll want to do with your surplus each year is important. Will you reinvest profits into the company? Will you pay out employee bonuses? Will you and your partners take on new benefits for workers? Answering these questions ahead of time will ensure that you’ll know what to do with your accounts when profits start rolling in.
6. Separate Accounting and Payroll
In this day and age, one of a business person’s chief concerns should be the prevention of embezzlement and other forms of company fraud. To this end, separating account and payroll departments is an essential task for a business owner. A business should never have one person managing all of a company’s income and profit distribution. While it’s important in life to give people the benefit of the doubt, it’s also imperative to protect yourself and your business assets
For these reasons, learning the financial ropes of a startup is easy. With common-sense approaches to business problems, entrepreneurs can focus on what they do best and develop their passion.