2 May 2016, 11:03 — 6 min read
An entrepreneur, either a startup or an established one, gets into business not just to fuel their passion – but also to make money! Every rupee, dollar and dime invested must return back manifold for sustainable growth. This is one of the crucial aspects of financial management.
In my time, I have seen several occasions where an entrepreneur driven by passion to succeed dons multiple hats, but leaves the money management to an accountant. While it is the right approach to let a certified person handle your money, it is also a good idea to have some knowledge yourself. Sound knowledge in managing the economics of your business will put you one step closer to success and avoid risks.
Here are some tips from my own experience.
1. Decide whether your company should be listed as Private, Private Ltd., or Partnership
Before you embark on the road to being an entrepreneur, analyse and discuss with your auditors and lawyers on what type of company you want to set up. Why is this important? Each model has different rules and responsibilities and a sound knowledge of these will help you decide. This is also essential in planning your finances for the startup.
2. Maintain at least two current bank accounts
Use the primary account for income, expenditure and day to day running of the business. Keep the second as reserve for a rainy day. In my company, we maintain incentive schemes and accruals for staff on the reserve account as well as quarterly service tax payments. This reduces cash flow headaches when the time comes for payment.
3. Never delay salary payouts for any reason
Remember that your employees are your assets. Plan your cash inflow in such a way that there is enough money for payment of salaries on time to avoid low morale and staff turnover.
4. Maintain strict payment terms
This is a tough one. Every business needs customers to survive. However, if the customer delays payment due to any reason, it’s a no-brainer that you as an entrepreneur are going to suffer. Many times I have seen valuable business time being spent on chasing payments and follow-ups. Would you rather be running your business or chasing people for late payments?
To effectively manage your finances, avoid having too many customers on your ‘outstanding payments’ list. Be ready to take up issues with the customer directly. Not only will this garner respect from both sides, but will also avoid payment hassles. If the issue exists from the business side, such as delayed delivery of projects, attend to them first.
5. Don’t bite off more than you can chew
Sometimes businesses get lured by the prospect of a big order and big money. To execute such orders, a working capital loan may be needed. Before applying for a loan, make sure there is a repayment capacity even if there is a delay from the customer side. Have a contingency plan for any situation.
6. Do not rely on just one single product or service
This tip is especially useful for a startup entrepreneur. Some businesses specialise and sell only one product. This may sometimes create problems when the demand for the product goes down or a better product is available.
It does not mean one has to market several products that will stretch your financial resources too much. Have few products or services, preferably of similar nature addressing the needs of a few domains. Be clear about what you wish to market and who should be your customers.
7. Cut down on unnecessary costs
Think twice before buying a product or a service. For a startup entrepreneur there are several avenues for free advertisement, such as social media, websites, e-mails and other mass marketing mediums. So think twice before you spend a fortune on a one page advert that may not bring in revenue.
Do not just focus on turnovers but also make sure the orders being executed do not become a ‘loss making’ one.
8. Invest in software & technology
Use current technology to your advantage and invest wisely. The savings you will accumulate in manual efforts, avoiding repetitive work and reducing errors, will pay off. This will also undoubtedly lead to improved customer service and satisfaction. Remember that even if the initial cost is perceived to be high, such an investment will pay-off quickly. A word of caution though - make sure the software is used by people who also believe that it is going to help them!
9. Learn some accounting
I have seen many entrepreneurs relying entirely on their auditors and accountants to understand the financial performance of their company. Well, that’s their job and they are the experts no doubt, however, a basic but firm accounting knowledge is a must for every entrepreneur. Be aware of the various deadline dates for payment of taxes, filing of returns etc. as otherwise one may have to pay penalties for delays. Make it a habit to review the balance sheet at least once every quarter.
I hope these tips are useful to you as they have been to me in managing my business finances.
Posted bySridhar Narayanaswamy
Managing partner of Innovatus Systems, founded by him on January 1, 2013. Sridhar is a result oriented professional with over four decades in the Information Technology &...