Entrepreneurship is thrilling and demanding, particularly for Canadian businesses. Many entrepreneurs are excited by creativity and achievement and not so much by financial management. That’s perfectly normal; other people can do the financial management. But you should at least understand the basics.
This blog series will cover financial management ideas that Canadian startups need to survive and prosper in today’s competitive business environment.
Why financial management for startups is different
Financial management is a universal aspect of business, but it takes on a unique importance when it comes to startups in Canada. Here’s why:
- Limited resources: Your company’s survival requires efficient resource management. Startups must maximize every dollar, unlike established enterprises.
- Cash flow is often unpredictable for a startup. They may not profit for a while, so early financial discipline is crucial.
- Startups in Canada must comply with financial and tax restrictions. Understanding and following these rules is essential to prevent expensive fines and legal issues.
With these unique challenges in mind, let’s delve into the first financial management tips every Canadian startup should embrace.
Open a business bank account and keep it separate
A specialized company bank account is essential for the sound financial management of your Canadian business. Combining personal and corporate funds will cause you stress and legal issues.
Specifically, here’s why you should separate company and personal finances:
- Clarity: Separating corporate and private money simplifies monitoring revenue and spending. It streamlines auditing and accounting.
- Legal protection: A separate company account protects your personal assets from legal and financial difficulties. It also prevents them from being inadvertently spent, withdrawn, or devalued.
- Dedicated business accounts convey professionalism to customers, investors, and partners. It boosts your staff’s confidence and highlights financial transparency.
Business accounts in Canada can be opened at a variety of financial institutions. Find a conventional bank, internet bank, or credit union that matches your startup’s requirements. Ensure the account has features and services catered to your sector and business strategy.
Make a practically foolproof financial plan
Financial planning is essential for every company, but especially startups. A solid financial strategy will guide your organization through early development and beyond.
How to construct a financially solid plan
- Determine your short and long-term financial objectives. Be realistic and specific about your goals. These objectives will measure your progress.
- Budget wisely: Make a precise budget of your predicted income and spending. Include office rent, staff pay, electricity expenses, and marketing expenditures. As your company changes, analyze and revise your budget.
- Track cash flow: Carefully monitor what money goes in and out of your business. Meeting financial responsibilities and capitalizing on opportunities requires a robust cash flow.
No plan is foolproof if it doesn’t take the unexpected into account.
Grow your emergency fund to stellar levels
Canadian startups confront many risks, making an emergency fund essential. Set aside money in an emergency fund, which will make tough times endurable instead of a catastrophe.
The most important thing about an emergency fund is you won’t have to drain your working capital and cash flow — or even go into debt — when you need money urgently.
Here are some tips to create a significant emergency fund:
- Start little: Consistently save a small percentage of your income for your emergency fund. Starting small is better than not starting at all.
- Set targets: Set emergency fund goals depending on your business’s requirements. Try to raise enough money to cover three to six months of operational costs.
- Avoid temptation: Avoid utilizing your emergency money for non-emergencies. Keep it separate from your company accounts and only use it in financial emergencies.
Gradually build up to a large emergency fund that can mitigate even large financial setbacks. This is an investment in your company’s long-term prosperity.
Conclusion: Financial management tips to survive
Now you know about segregating personal and company funds, making a watertight financial plan, and constructing a significant emergency fund. These fundamentals will help your business succeed financially.
Commendably, your mind is already in the right place since you’re getting financial management recommendations for Canadian businesses. Take it one step further by getting an individualized strategy created for you; contact us today for a free consultation.
