Fund management in the rising age of start-ups

It's a brand new year and you have begun it with a bang by starting your own company! That's great news....but the questions on your mind are - what next? How am I going to raise funds as seed capital for achieving the goals of the company? Am I prepared for the draw-downs that are soon approaching? How should I allocate the funds so that there is enough liquidity for initial start-up expenses like marketing, technology, salaries, etc.?

Success of a start-up is in one important word - scalability. And until one achieves the critical tipping point of scale for success, being wise about spending, prudent about investing and super-conscious about managing every activity in a cost-effective manner are most important. So, it can be quite a daunting task to figure out answers to all the above questions and many more, especially when you may have limited funds to grow a great idea, or suddenly have a lot of money with seed funding, depending on which phase you are in your venture, and how to plan its allocation.

Another point that is noteworthy is being asset rich and cash poor. This means, you have a big list of assets to show in your company's balance sheet but don't have the surplus or reserves to manage the business. So, you really need to keep a keen eye on the cash flows. This is the case in many old-world businesses like manufacturing. In the new age online / tech start-ups, the asset is mainly the great 'idea' or the 'people with the idea', which cannot be put on the balance sheet!

Invest in human capital: If you are one of those control freaks and multi-taskers of A to Z activities, then you will run out of energy soon. So let's face it, all of us are blessed with only 24 hours in a day and there are only limited things that can be done in that time. Employ quality people and delegate work to them. By doing so, you are helping the economy, you can reduce your work load, focus on the important things that need your attention, stay on top of your game and be happy devoting your precious time utilising your core competence, doing what you do best rather than getting pulled into distractions that consume your day.

You hire a baby sitter or get help from family or friends to take care of your baby during your absence. Likewise, your start-up is your baby that needs immense attention to nurture it well. You need to give it your whole and soul, without being worried about managing your finances. Having a trusted financial advisor to take care of your money management will give you financial freedom and you will feel liberated. They know best how to protect your capital and make your money grow.

Mahesh gave up his full time job to become an entrepreneur. He started a wealth management company to manage clients' monies, but found it difficult defining the boundaries of his personal money and his company's money. He was faced with a constant dilemma because there was no clarity on demarcation. And he had a family with a four-year-old son just beginning school. It was so overwhelming that it reached a stage where he began to crumble within with managing all the personal expenses and the pressures of being an entrepreneur! Then he took help from an all-rounder (in cricketing terms) and here it means a friend, philosopher, mentor and guide all rolled in one. The positive results showed in his company's growth, expansion and a balance in his personal life. So, it is advisable to have someone who can provide the expertise to navigate through the intricacies of that realm. Taking a little advice will go a long way, especially when you are embarking on a journey that will shape your and others future.

Here are a few money management dos and don'ts if you are starting a new venture:

• Get familiar with the basis of finance and assess your financial situation
• Identify sources of funds and plan in advance for major expenses
• Safeguard your documents (PAN, passport, registration certificate, etc)
• Maintain proper records (IT returns, licence renewals, investments, etc)
• Pay all bills on time…..you don't want to land up paying penalties or get a bad credit report
• Have an emergency fund / reserve / surplus
• Get adequate risk cover / insurance
• Avoid multiple bank accounts, credit cards and don't share passwords
• Do not evade taxes and don't ignore inflation

To wrap it up, discipline is the bridge between goals and accomplishments. Be disciplined with your finances so that it creates a strong foundation to the success of your business.

 

As you begin a new chapter in the journey of life, wish you all the best in all your endeavours.

The author is Managing Director, Sinhasi Consultants