Addison, our Chief Financial Officer and also founder of a website on visas, Visahunter.com, has been working with our startups daily, helping and guiding them through the financial process. In this post we decided to share some of his insights into the importance of strong financial management for startups.
Nowadays, it is common to see young entrepreneurs focus the majority of their time on product development and customer acquisition, leaving little time to correctly handling their finances. Regardless of the importance of giving attention to these areas, finance should never be neglected. When it comes down to it, revenue and cash flow are defining factors for the direction and future of a business. A financial plan is a map to get and keep your business on track and it is important to understand this from day one. Having this kind of culture breeds confidence among potential investors, helps companies make more informed decisions and mitigates the risk of insolvency.
One of the most important factors in strategic financial planning is to create a monthly budget and analyze how well your actual revenue and expenses match those of your budgeted plan. Completing this thorough analysis allows entrepreneurs to see a visual representation of where they are spending the right amount and where they need to cut costs. When they see these areas and adjust them, it is no different than increasing your revenue without increasing their cash inflow. There is nothing to lose!
Another important factor in strategic financial planning is carefully planning out how you will allocate an investment once it is secured, understanding exactly which areas need more funding and which need less, according to your type of startup. For example, an ecommerce startup will have to allocate a certain amount of funds to logistics in order to deliver their product whereas a startup with a one-payment fee for an online service, such as translation, won’t need to allocate any money for logistics.
These tips can be summarized into three main points: Budgeting, revenue projections and monthly financial reporting.
For startups based in Rio, Addison strongly recommends having a clear understanding of the Brazilian tax structure. It is a complicated system and if you want to do business in Brazil it is very important to understand how you are being charged. Once this structure is understood, Rio is an internationally connected city with incredible universities and huge foreign presence that presents a favorable environment to open a startup.