1. How to manage finances in a start-up

How to manage finances in a start-up

Financial management plays a crucial role in the success of a company, more so in the case of a start-up. Most start-ups take off with limited staff and funds and expect employees to multi-task. So, there may not be any need to hire a finance specialist in the beginning.

Published: May 18, 2017 3:31 PM
If you require funds to meet your daily expenses, inventory, etc you may opt for a short-term loan for less than a year, though it may attract higher rate of interest.

By Manoj Sharma

Financial management plays a crucial role in the success of a company, more so in the case of a start-up. Most start-ups take off with limited staff and funds and expect employees to multi-task. So, there may not be any need to hire a finance specialist in the beginning. In fact, it is advisable that one of the founders manages finances, for that cuts manpower cost as well as gives better grip over the money flow.

However, as the company starts growing, managing compliances becomes a tedious job and you need an expert for the task. You can either hire an experienced finance manager or outsource the services. But sooner or later, you will have to set up a full-fledged finance department to do things in a professional and efficient way. Luckily, nowadays several online financial management tools are available for various functions such as streamlining customer payments, giving out staff salaries & allowances, tracking invoices, and keeping track of tax deductions. So, do a thorough study and find out the tools that are best suited for your requirements.

Sources of Funding: A smart start-up works-out finances very carefully before launching the company. But as growth picks up, a fresh round of funding becomes imperative. It is, therefore, necessary that founders have a clear idea about the sources of funding. Following are some of the sources that the start-up can tap:

Government Funds: In order to promote start-ups, both central and state governments give certain funds either free or at a nominal cost. So, you must find out if your business qualifies for government financing or not, and if it does, then do tap it because it is the cheapest and safest source of funding.

Funds from friends, relatives: You can also check with your friends and relatives as sometimes they may be willing to lend some money. This, of course, will depend on how well they know you and your business model, and how much they trust your ability to return the funds after a certain period.

Equity Investment: Even if you have taken equity from one or more investors before launching your company, you can always look for further selling of equity to a fresh investor or the initial ones. However, you need to be sure of the total equity that you will be willing to give out. Generally, start-up founders keep more than 51% equity with themselves for that gives them controlling rights.

Commercial Loans: Start-ups often go for funding to banks or other financial companies. Here, you must be clear about the specific purpose for which loan is required and for how long you will need it. If you require funds to meet your daily expenses, inventory, etc you may opt for a short-term loan for less than a year, though it may attract higher rate of interest. But if you have to buy technological equipment or any other fixed asset, you should go for a long-term loan which is available for more than a year on lower interest rates. In both the cases, bargain carefully as financial companies often give discounts.

Expenditure Strategy: After having worked out funding, a start-up should also know where to spend, how to spend and how much. Following are some points that should be kept in mind to avoid wasteful expenditure and keep finances within budget:

Avoid Expensive Equipment: You will find several suppliers of the technology which is best suited for your business. So, do due diligence before zeroing on a particular supplier, and try to work-out a deferred mode of payment instead of one-time payment. In the case of office equipment such as computers, printers, etc, you need not go for fancy brands rather choose functional equipment which will be available at a nominal cost.

Outsource Staff: There are some important functions in any business, and for that you need to hire qualified and experienced staff. However, in order to cut overhead cost, go for outsourced staff from agencies which are easily available in the market. Also, hire trainees who, over time, should be trained by experienced staff to fulfil future manpower requirement.

Go for Rented Office: Till your business start making profit, opt for rented office accommodation because rentals are generally cheap these days in most cities. Also, avoid a fancy office; rather go for a functional office which has necessary furniture and enough space for your staff to comfortably work.

Avoid wastage, unnecessary travel: A considerable amount of money can be saved by putting in place practices that help save office stationary, business trips, office parties, etc. The idea is to cut cost from wherever it is possible without compromising on essential things.

The bottom-line is: You need to do diligent financial planning, spend carefully, and must have a prudent strategy that can keep you going till you start making profit.

(The Author is Co-Founder and Head of Finance, Policybazaar.com)

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