The year 2015 witnessed a major increment in the startup trend in the country. A number of big startups came into existence in the fiscal year. Major investors like Sequoia Capital and Accel Partners have invested in startups in India. With Rs 6,100 crore fund, Sequoia Capital sees 2016 as a great year to make new investments in startups.
But the trends in 2016 appears to be reversed. While a many of them are shutting their doors down and unable to maintain themselves in the market. India is witnessing a very competitive market. The decrease in the funds this year pushed the startups to bootstrap and crowdfund the businesses.
If you need an attorney to help you save your company, you can contact Barganca Law LLC.
For every single startup that succeeds, there are 1000 startups that fail. Most of them are innovative and investor backed. There are a lot of reasons for that. You have heard that Housing shuts it property rental business and Swiggy shuts down in major cities. While the possibilities of reasons may be vast, but most of them have gone through financial mismanagement.
Startup finance is a very critical yet less discussed subject. While some accelerators have mentors to guide you through it but the strategies discussed are always positively focused. Being a startup you need to know the right ways of managing your startup finance as well as all the possible incorrect ways of startup finance management.
We have prepared a list of some best strategies and techniques that you can use to better manage your startup finance. However, you can always Google and research more about startup finance to save your company’s financial ruin at the very early stage.
Monitor Your Cash Flows
A successful business stands on three pillars, the ability to make profits, the art to retain customers and the skill to manage cash flows. Cash flow is the credit-debit account of your business. It has been witnessed that a startup is making great profits and huge sales, but at the end of the month don’t have the money to pay salaries and expenditure. The cash is deployed to make profits.
Entrepreneurs fear one question “Where is the Cash?”. In general, higher profits seems to witness higher bank balance. Pay uttermost attention to my words now. Bank balances and higher profits are inversely proportional. The higher the bank balance, the lower the profits would be. This article is very short to elaborate it properly.
Understand Sales & Profits
Here comes the most interesting part. If you are inspired by companies like Uber & Ola, or Flipkart & Snapdeal, you might have in mind a similar marketing model. If you look at MakeMyTrip or Goibibo, you can find that they provide a tremendous discount on Hotels and Holidays, and that too throughout the year.
In order to impress a white knight investors by volume of sales, you need a very deep pocket money with you as you have to suffer losses per rides or orders (like them). Sales is a medium to generate profits. High volume sales cannot give you higher profits. The business to do business depends on a single theory at the end of the day; how much profit are you making?
Strong Focus on Revenue Model
A business cannot run for a long on investor’s money alone. Your business will be an example of failure if you don’t manage to generate the operational costs from revenue after the gestation period. Without an idea of where and when the revenue would be generated, you would be a non-profit organization.
Startup founders should equally focus on the Startup Finances and the financial model, apart from the technology, marketing, and innovation. Ensure your survival in the market. If you are generating the operational costs, you can easily get an investor for your growth and development.
Analyze and Predict Working Capital
While fixed capital is very easy to calculate, working capital is something which needs very keen understanding of your business, market and customers. Working capital consists of the operational costs to pay salaries and bills, purchasing materials and maintaining inventories (in the case of organizations engaged in manufacturing / trading) and maintaining customers in case if you sell goods/services on credit.
The difficulty to understand working capital leads to many startups starving to bankruptcy and eventually shutting down the doors. Among those businesses that close down due to a shortage of funds, a large percentage of them do so due to a shortage of working capital.
Understand the Risks
While 90% of the startups fail within first 5 years, it’s very important to understand the market risks and your chances of growth. If you are a newbie, don’t ever risk your entire saving on that one derivative idea. It may result in ruining your everything if the startup fails. Even if you want to invest in your great idea, invest in multiple rounds. Burn the money but be sure to learn from it to avoid burning your next round if investment.
Most of the times if your risk everything, you may loose everything. Never take loans on personal assets. Try to opt for investments instead of loans. If you are decided to go with loans, opt for small business loans. There are certain points in mind while you study and decide the market risks.
Unity in Diversity
A well-heard statement. Apply this to your startup finance too. Try not to put all your finances over a single marketing or sales campaign. Diversify your investments because every business commits money to an investment to win it back later.
A simple example could be of a Content Platform Startup. If you invest in freelancers for content, try to invest in multiple agencies and rotate the finances. Make sure you place your money into multiple ventures so if one fails you are not completely out of control. Startup finances should dramatically be discussed daily with an open mind to make whatever changes possible at the very early.
Insurances – The Life Saver
Insurances are investments worth making. The USA is a great example of startups who invests in Insurances. While it may seem to be a useless capital burning at the beginning, but it can help you save your ass in the future. How can insurances help you secure the future of your startup finance?
Compensation and legal costs can run you into trouble if someone sues you in future. More than 1,30,000 cases were filed and restored in 2015 (data by Consumer Forum) against various companies in India. Insurances will help you in your bad time to manage all your expenditure in legal aspects of your company. If you are confused, you can read this to know different types of insurances for a startup to know about.
Plan Your Tax Return
The tax systems in India can cause a lot of problems if you don’t focus and plan to file your tax returns. Prepare your tax projections in advance and manage your cash flows including deductions to be made for filing tax returns. It is advisable to hire a CA or an expert to do so.
A professional can teach you about the records to be maintained to manage your taxes. See this infographic to learn about the tax system in India. Avoid schemes to pay less tax. Stick to the law to avoid IRS auditing team to look into your cases. Penalties and legal bodies can destroy your brand image as well as startup finance model to the extent where you have to shut your business down.
Finance Management Apps & Services
Consider using the latest technologies and tools to manage your startup finance. While it is advisable to have an expert to do so, but you can also benefit from using this tools if you are a beginner. A lot of tools are available in the market to manage your startup finance.
Whether it be App Store or Google Play Store, different apps are available to manage your startup finances. Computers and MacBooks also witness a lot of software. A lot of companies are also there to help you with your startup finance including Vakilsearch and Indiafilings (legal plus accounting service providers). Track and keep the record of each and every data related to your startup finance.
Talking to startups helped me analyze one of the most common problems that result in most startups failing with their startup finances. And that is the human urge to invest in liabilities. One of the similar investments is investing in your working spaces. If you are a startup, there are a lot of co-working spaces which can help you save money.
If you need your own office, select a location that benefits you the most. Don’t opt for metropolitans if you don’t need them. Don’t spend too much on interior decorations. Understand the difference between liabilities and assets. While your office space can be your asset, but the furniture and wall paintings are liabilities that won’t pay you back the investment you burn on them.