Financial foundations for a fintech start-up

Starting a business is never an easy feat. But in the fast-moving and competitive world of fintech, and with worldwide economic and geopolitical conditions changing every day, start-ups in the fintech sector need to keep one step ahead.

As well as making sure business plans, hiring strategies and regulatory compliance are spot on, it’s essential to have some core foundations in place first. And that includes making sure your start-up has access to the tools it needs to keep close control of its finances.

Based on our experience of working with small businesses in all sectors, here are some areas to consider when it comes to keeping your start-up in great financial shape.

Boost working capital

 Keeping cash in the business is important for small companies, where every penny counts. But if your customers have longer payment terms than those you are offered by your suppliers, cash will be leaving your business faster than it comes in. And this lack of working capital has a knock-on effect on the company’s ability to not only invest in growth, but also it’s ability to service immediate needs – whether that’s a new hire, new technology or new infrastructure.

With the right tools in place, your business can plug these payment gaps. For instance, American Express offers payment solutions where it will pay your suppliers on your behalf in five days and give you up to 55 days to make that payment back. Such solutions not only reduce the need for external financing (and the interest that comes with it), but help to ease both cash flow and financial stability, putting you in a stronger position as a buyer and supplier.

Don’t be afraid to think global

 Financial regulation across borders requires close attention, however doing business internationally as a fintech needn’t be a challenge when it comes to the logistics. Thinking internationally should be at the forefront of every fintech’s mind; indeed a third of SMEs in a global American Express survey earlier this year said that international expansion would be a top contributor to financial performance in the next three years. However we’ve seen significant currency fluctuations in recent months, and effectively managing these can be fundamental when it comes to managing your margins.

For example, if a UK firm is paid €300,000 by a customer, a fluctuation of 0.025 in the exchange rate could cost the company over £7000 in a single transaction. The impact can be even greater for those who have to hold money in another currency for longer – for example those held to long payment terms, or those that take payment from a UK customer long before they pay an overseas supplier.

Simple forms of currency hedging like forward contracts can effectively protect a business from exchange rate volatility by guaranteeing a fixed rate. By taking out a forward contract, a company can agree the exchange rate it will receive against an invoice, for up to a year ahead. Not only will this protect margins and cash flow, it will enable more accurate forecasting and budgeting.

Keeping cash in the business for as long as possible – and having visibility of the cash that is leaving – can have a huge impact on business success and growth. And that’s particularly true for small businesses in what is a rather uncertain time. Make sure your company has the tools it needs to make financial management as simple as possible – with a solid financial foundation, the world is your oyster.