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Seven Golden Rules for Financial Prudence in startups

      

published in e-magazine "Chatterpillar" Nov issue:

 Seven Golden Rules for Financial Discipline  in a Startup!

                                                                  CA Swatee Shere Rane

                                                                                                                                            

You have setup a Business Entity and are struggling with the initial startup challenges. As you sweat it out in the day, you long at the end of it, to see a fat balance in your bank account and the feel of hard cash on your work table. Yes, the task seems very daunting, but how does one get closer to this entrepreneurial dream. 

Hey there! You need to hold your breath and practice the winning  mantra of “financial discipline”!

Here are  seven Golden Rules of financial discipline which shall lead your  business to success and growth.

Rule One: Prepare a Business Plan:.

When you are in the planning stage, estimate only your realizable sales figures, and income and be modest when you do this. Do not forget  to budget for all your operation costs, human resources expenses, administration overheads, depreciation charge and finance and selling costs appropriately. As Benjamin Franklin said, “Beware of little expenses, because a small leak can sink a great ship”. Never over estimate your Income and under  estimate your expenses and keep a close check on the budget variances.

Rule Two: Test Fast, Fail Fast, Adjust Fast (Tom Peters).

Yes, as an entrepreneur you have an idea and you need to test whether this idea is commercially viable or not. When you are testing your business idea, there are equal chances that you may win or you may lose. Hence, you must test fast and check the results. If you fail fast, you need to adjust fast. Never remain invested in a loss making business venture. Either you correct your flaws quickly or exit quickly.

Rule Three: Don’t overburden yourself with Debt:

These days, it is easy to obtain loans for various businesses against securities and bank guarantees. But as a prudent businessman, you need to calculate the debt costs correctly. If you don’t, you will be surprised to know, after a few years have rolled by, that all your hard work has paid rich dividends to your lenders, and not to you.

Rule Four: Update your accounting records regularly.

Always remember that you are different from your business. Hence do not load your personal expenses onto your business account. Also ensure that your accounting records are updated regularly. Keeping your accounting records  up-to date, helps to  manage cash flow, fund flow, efficiently and it also helps in complying with various direct and indirect tax compliances.

Rule Five :  Review  your internal control procedures, systems and financial statements to assess your productivity, profitability and net worth.  

Setting up healthy internal control systems and procedures is very important for young start ups. But equally important is continuously reviewing that the systems are working effectively. While you focus on penetrating new markets, keep a vigil on  your financials.  Be vigilant about the productive use of your business resources, ups and downs of your business profits and  rise or fall in the net worth of your business.

Rule Six  :  Save

Don’t forget, “A penny saved is a penny earned”! So, all your efforts should be put in reducing costs, making optimum use of funds and resources, and saving the surplus. Open a separate bank account, wherein you can keep transferring a part of your monthly surplus from your business account as your savings. Practice this discipline for business survival and growth. This way, you will always have a separate bank account to withdraw from, in case of business exigencies.

Rule Seven: : Invest your profits in business

The final golden rule of financial  discipline would be to  invest a part of your business profits in your business. You may add machinery, office equipments, computers, upgrade office premises, compensate skilled human resources adequately, increase allocations for marketing and publicity, etc. etc. There are umpteen opportunities to be explored! And investing more money for these requirements, shall add value to your business and guarantee your Startup - survival, growth and more and more profits….