Startup enterprises tend to be financially precarious. The early years of laying the groundwork, attracting investors, and investing in the business are often tumultuous, with each new day bringing challenges and opportunities.
Protecting your startup’s financial security should start on day one of operations. Here are six tips for protecting your investment and the integrity of your enterprise.
Keep Personal and Business Finances Separate
Don’t make the mistake of integrating your personal and business finances. Many entrepreneurs take this path of least resistance during the early days of their startup before they’re fully sure of the scale or direction they’re targeting. However, what’s easiest now will create complications later.
Instead, create separate bank accounts as soon as your business is a legal entity. Set up a checkings and savings account, and apply for a small business credit card. This approach also allows you to start building a business credit score while you get established, which will help you secure more substantial financing as you grow.
Invest in Cybersecurity
Many entrepreneurs and small business owners mistakenly believe that only large, well-established operations are the target of cyber crimes. However, the opposite is true. Cybercriminals typically look for easy targets. Whereas established businesses tend to have cybersecurity measures in place, small businesses and startups are vulnerable.
As of 2022, 43% of cyberattacks are aimed at small and medium businesses. Put appropriate security measures in place as soon as possible, such as a firewall, VPN, regular data backups, secure passwords, and multi-factor authentication.
Use Access Restrictions
While the issue of employee access overlaps with cybersecurity, it’s worth mentioning as a standalone issue. It’s estimated that 95% of data breach and loss situations result from human error. Implementing user access limitations— i.e., only giving team members access to what they need— can help prevent a catastrophic data loss or breach, resulting in a significant financial loss.
Putting access restrictions in place also helps prevent fraudulent activity within the team. While it’s hard to imagine your valued team members as criminals, it’s better to err on the side of caution for everyone’s security. Limit access to secure financial information and put an approval process in place for transactions. For example, having one person process payroll and another approve the transaction.
Invest in Business Insurance
Taking a proactive approach to covering financial liabilities is a must when operating a startup. Invest in business insurance to cover any issues that arise with the delivery of work, as well as any staff associated with your startup.
General liability insurance should be a bare minimum for your startup. Professional liability insurance or product liability insurance will also protect your finances if a service or product fails to meet customer expectations, resulting in injury or a lawsuit. Finally, business interruption insurance saved many startups during the pandemic shutdowns.
Put Contracts in Place
The importance of getting everything in writing cannot be understated in the business world— even if you’re working with trusted friends. You should have contracts in place with your team to protect intellectual property and outline the terms of your agreement. Additionally, putting contracts in place with vendors and customers will help protect all interested parties.
The cost of having a legal team create contracts, and the simple software available for digital delivery are well worth the investment when it comes to protecting your startup’s finances.
Create an Emergency Savings Fund
The global pandemic has been a stark reminder of the importance of having an emergency savings fund. Consider integrating the creation of a savings fund on day one of business operations. Earmark a percentage of your earnings to put in high-interest savings to keep your business running should an emergency situation occur.
With these simple tips, you can increase your startup business’s financial security and validity.