Common budget mistakes for tech startups

April 15, 2011
A call centre personnel uses a calculator as she answers a call from a investor at an online brokerage company in Tokyo October 23, 2008. REUTERS/Yuriko Nakao

A call center employee uses a calculator in Tokyo. REUTERS/Yuriko Nakao

— Ed Buchholz is the co-founder and CEO of 60mo, a cloud-based financial services company catering to small business owners. The views expressed are his own. —

Most everyone is familiar with the cliché: more money, more problems. But what if the problem is money?

Keeping your tech startup solvent requires the avoidance of several common budget mistakes. A budget or lack thereof can make or break a startup. Keep your overhead intact by doing the following:

Have a budget. Money should not disappear from your bank account into a fiscal black hole. At my last company, we were spending money but didn’t have an accurate view of where it was going. This experience is actually the primary reason my new company’s product, 60mo, exists. Organize expenses and revenue in whatever way works for your company. Make a cash flow plan. Keep current and accurate financial statements and analyze where you can trim the fat. Having a good budget is the beginning to avoiding common problems because it’s the common sense barrier between you and wasteful overspending. Avoid the first common budget mistake and actually create a budget.

Negotiate with vendors. If you are purchasing goods or services from others regularly, make contact and drive down the price. Negotiating will build important relations and reduce costs that are otherwise eating through your overhead. Vendors want your business and will offer discounts to get you to become a recurring customer. Remember even if you are purchasing online, someone somewhere is operating the site and might be willing to cut you a break if you take the time to contact them. At 60mo, we make the effort to reach out to all of our major vendors and establish a friendly relationship. It won’t always work, but its good business to at least try. Sixty percent of the time it works every time.

Minimize discretionary spending. In 60mo’s earliest days, we had a tendency to splurge on dinners out with the team whenever we had something to celebrate. When we started using our own product, we began to understand exactly how much those “team-building” meals were adding up. New businesses hemorrhage funds for unnecessary dinners, travel, and swag when they don’t have a clear budget and insight into their spending. The point of having a budget is to avoid waste. Be mindful of an expense’s worth, and your company will be worth more.

Plan for the future. Only focusing on the past and present gives companies a narrow image of what is going on inside of their finances. Think of accounting and dashboard tools as rear-view mirrors, they only show what’s behind you. Financial forecasting tools act as a GPS to get you where you want to go. By planning six months to five years ahead a company can strategically spend and save. With these tools one can manage liquidity, net present value, and project cash flow. For my business, I have a full five-year forecast with projected employee hires and “what if?” scenarios that allows me to be prepared for any situation. By thinking to the future you improve your present.

While these are merely a few of the budgeting problems experienced by startup companies in the tech sector and beyond, they are perhaps the biggest and most neglected. Fixing them requires little more than the right tools and few manhours, a cheap price to pay for the possibilities they create. Don’t break your piggy bank because of poor budgeting, stay on top of it and stay profitable.

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