Startup India phrase has caught the imagination of the country and that is why startups are such an ‘in’ thing in the country today. However, for every startup that succeeds there are several which fail. There are some basics on finances that startups need to keep in mind and here we take a look at top 6 points entrepreneurs need to focus on:
1. Before starting up
It is very important to have at least money saved to take care of six months of expenses before any person leaves a job and set up his own enterprise. It is also important to curb unwanted expenses to save some money.
It is always safe to have a regular source of income, which ensure financial stability during the startup phase – ideally from an investment source or from a spouse earning a fixed income. Investment products such as, fixed deposit, bonds, debt & gilt mutual funds, rental income etc. could provide a source of regular income during such phase.
2. Insurance for entrepreneurs
While starting up a new enterprises, there are a lot of risk involved and insurance becomes one of the most important factors as it comes in handy to reduce this risk. Uncertain situations such as death, diseases, accidents, etc. could have impact in the regular functioning of the business. These incidents should be insured to ensure that it does not affect the finances of the company and doesn’t erode away the savings for home expenditure. With regards the insured amount, plan for the worst situations and take up an insurance policy which would suffice the needs in bad times. It is always advisable to err on the side of caution and insure for more than you initially think you might need.
3. Investment options for startups
Since startups are considered risky, one should invest in safer avenues to protect the capital put aside ideally in fixed income securities, government bonds, bank deposits, etc. These will safeguard against any sudden drop in business, as the capital is secure and earning an interest – which can be then utilised for any expenses. These could be company bonds, bank fixed deposits, fixed income mutual funds and fixed maturity plans.
4. Planning for contingencies
Along with a best case scenario model, it is always necessary to make a worst case scenario model and make sure that provisions for business failure has been made. This helps in preparing for situations accordingly which might arise if there is a business failure.
5. Startup marketing spends
Marketing and advertising are very important but should be done tactically and not generically. Decide on the target market and choose the media for advertising. A lot of startups have adopted social networking forums such as Facebook, Linkedin, etc. to advertise. It is advisable to reduce expenses on advertising agencies, PR agencies and social media.
6. Saving money
Offer employees an option to work from home. If you are in a business related to information and require heavy human capital, it is better to offer employees to work from home as it will save extensive office space, which in turn can help in bringing down rentals, electricity cost, office equipments and travel expenses.
Keeping a check on office supplies like packaging, postage, printing papers, stationery, etc. is crucial to rein expenses. In most organisations such expenses are often ignored, as they are individually small – but collectively large. If such expenses are controlled and audited then it can be a great cost-control technique. Consider purchasing in bulk, reuse of packaging material, using e-mail instead of regular postal mail.
Start it now: Highlights
Ensure you have six months of living expenses saved up before starting up.
Take adequate insurance cover.
Keep aside some money for Plan B, in case things do not work out.
Track expenses and ensure that it is kept within budget.
The writer is CEO & founder, Right Horizons