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Posted by: CIEL on Wed, Nov 28th, 2018

6 Ways Indian Startups Can Avoid Financial Trouble

Launching a startup is easy and the fanciest part. But running it successfully and profitably is where the rubber meets the road.

They say if you are able to successfully sustain the first three years, your startup will eventually roll. However, a lot of startups shut down within the first year of operations. One of the major reasons behind this is – ‘bad financial planning’.

Too many startup founders overlook basic steps in smart financial management, and make the mistake of investing in fixed liabilities such as –

  1. Expensive leased office infrastructure.
  2. Full-time employees.
  3. Flashy equipment such as computers, coffee vending machines, printers, and projectors.
  4. Office parties and leisure travels.
  5. Expensive business travel.
  6. Paid subscriptions and unnecessary software.

Mistakes abound when you are getting a sudden inflow of income and you lose track of your expenses. Reckless spending leads to quick burnout of cash whether you are bootstrapping or funding your business through venture capitalists. You should know where every rupee in your business is coming from, and where it is going.

As a startup, all your money should be going into the following –

  1. Figuring out your target market.
  2. Acquiring new clients and investing in building relationships with existing clients.
  3. Making a Minimum Viable Product (MVP) to solve the buyers’ problem.
  4. Moving your product or service in the right direction by continuously evolving it.

Financial proficiency does not come easy for many entrepreneurs, and that is OK as long as you work on how to get help in financial management. Here are six simple finance tips and tricks for startups –

1.       Set financial goals 

Financial goals are not just for profits from business, but also for returns from your investments. Set your target for income and expenditures for 6 months, a year, or even 3 years and build your investment portfolio accordingly. Even if you don’t meet your target, you will still be on the path to achieving it – which is better than aimless financial drifting.

 

2.       Invest your capital and profits into building more money

Many startups just keep their surplus cash idle in banks which is a major mistake. You can invest your extra cash in low to medium risk mutual funds, SIPs or fixed deposits. You needn’t invest big amounts. Even micro-investments can lead to good returns which will benefit your business in case you need money in an emergency. A short online course in investments and financial planning can help you make informed investment decisions.

 

3.       Spend money intelligently

You can work well from a co-working space rather than taking your own rented building. Hire interns or part-time employees rather than full-time ones. Find free and simple software for your initial needs. Invest in simple accounting software or apps, and learn to manage finances on your own till the time you can hire someone else to do it for you. Look for the most economical ways to market your product or do business development. Planning your budget wisely is the key to success.

 

4.       Track how you spend your time

Time wasted is money wasted. If you are spending your daily 24 hours wisely, it has a major impact on your ability to generate business and money. Successful entrepreneurs use simple habits to stay effective. It usually takes at least 21 days to make a new habit. Whether it is about investing time in personal health, or reading inspirational books, invest your time well.

 

5.       Eliminate credit card expenses

Spending through credit card is alluring when you see funds coming in. But you can do it only if you can pay the debt every 30 days. Even then, you don’t realize when the debt goes out of hand. This can quickly suck in the money that could have been used elsewhere to grow your business.

 

6.       Keep a record of payments and taxes

According to the 2017 ruling by the Government of India, you cannot pay more than Rs. 10,000 in cash. Keep your payments to cheques, drafts, or bank transfers for easy tracking at the end of the year. It will also help you avoid tax penalties.

These easy finance tips will help you manage expenses better, avoid financial stress, and focus on your passion – making your product and service better, and finding the right clients.

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