5 Common Financial Challenges Startups Have to Face in Process of Business Building
Startup is a company engaged in technology that was specially founded to create innovative new products or services and solve certain problems or needs among the society. Startups are usually founded by a group of people who have creative ideas and are passionate about creating better solutions than the existing ones.
The main characteristic of a startup is focusing on innovation and rapid growth with the use of technology as a tool to achieve these goals. Startups also tend to take advantage of limited resources and have a high risk of achieving success. For this reason, startup founders must be willing to take risks and have the ability to adapt quickly to changes in the market and technology.
Due to the many risks that it may have to face, startups also often have to face financial difficulties that if not being taken care properly can harm the company as a whole.
What Are The Financial Challenges Startups Often Have to Face?
Most startups fail to survive due to a lack of funds or being unable to get a profit (capital gain). They do not have any funds to continue operation and failed to acquire new funding in the process of building. Thus eventually it failed and had to declare bankruptcy.
Another reason why they fail to get funds most of the time is because the product or services they offer have no value to the market needs. The many types of financial challenges usually have to face by startups include the following.
1. Initial funding
Startups often start their businesses with limited or no capital, which can be a huge challenge in building a product and marketing it. Fostering a startup often requires a lot of time and money. Especially if the business model (service or product) offered to customers is still little known.
2. Operational expenses
Operational expenses such as employee salaries, office rent, raw materials, and marketing costs can be a big financial burden for startups, especially if their income is still unstable. This is arguably one of the largest monthly expenses. Without sufficient initial capital or income, it’s only a matter of time for startups to go out of business due to a lack of funds.
3. Cash management
Startups must be able to manage their cash well to ensure business continuity and growth. They must monitor cash inflows and outflows closely to be able to create any financial decisions that aim to minimize the risk of bankruptcy.
4. Obtain additional capital
When startups reach the growth stage, they may need additional capital to expand their business. Obtaining additional capital from investors or financial institutions can be a big challenge, especially if the market is not supportive or if previous investments have not yielded the expected returns.
5. Able to manage debt
If startups decide to get a loan to finance their business, they must be able to manage their debt wisely and pay back the loan on time to minimize the risk of getting fined and eventually having to declare bankruptcy due to unmanaged debt.
What Are The Characteristics of Startups with Healthy Finances?
To ensure startups can overcome any financial challenge and build a successful business, it is important for them to have a thorough business plan, monitor their cash flow closely, and make wise financial decisions. They can also seek help from an accounting company in Singapore to help manage their finances more effectively. In order to be able to differentiate whether your startup is having a healthy finances or not, you can learn from the characteristics below.
● Stable income
Startups with healthy finances tend to have a stable source of income and grow over time. Stable income allows startups to allocate resources more effectively and increase profits.
● Controlled expenses
They have well-controlled and well-structured expenses. They can control their operational costs and avoid unnecessary expenses.
● Have sufficient cash reserves
A financially sound startup has sufficient cash reserves to deal with possible emergencies or market uncertainties. Adequate cash reserves allow startups to survive and thrive when market conditions are tough.
● Avoid unnecessary debt
Startups with healthy finances tend to avoid unnecessary debt and strive to pay their debts on schedule. They are not dependent on debt to finance their operations.
Startups with healthy finances are able to generate stable and sustainable profits from their operations. The ability to generate profits shows that startups have a healthy and sustainable business model.
● Constantly monitoring and evaluating finances
Startups with healthy finances always monitor and evaluate their financial condition regularly. They can identify financial problems and make necessary changes to optimize their financial performance.