This article was originally published in The Financial Express
There are some absolutely non-negotiable financial planning activities you need to do if you want to become a successful entrepreneur. You can’t reach where you want to reach if you don’t know where you want to go.So, firm up your financial goals first. Are you looking to create a profitable technology product? Are you looking to bootstrap your way out of trouble in the initial years? Or are you looking for a valuation and an exit?
Each of the above goals are legitimate in itself. Regardless, focus on the market problem you are solving. You can’t possibly be doing a great job of building a valuation or a product if your solution is not solving the market problem at hand or there’s a competitor product that solves it in a better way.
So imbibe the ability to solve the problem in the best and most profitable way possible; the financial goals will follow. Nurture the apple seed; the apple will grow right, naturally.
Don’t lose your way once you have set your sights on your financial goals. Columbus lost his bearings when he set out to discover Asia in the 15th century. Relying on a faulty map of the Atlantic, he landed up in the Americas instead.
Your map, as an entrepreneur, is your business plan. Get this right. At a bare minimum, you need to have your profit and loss projections, breakeven or unit economics workings, pricing strategy, go-to-market strategy, and funding requirements.
When it comes to profit and loss projections, while a three-year projection is a hygiene factor, most investors require a five-year or even a seven-year projection. This demonstrates your ability to peer ahead and visualise your business idea as it navigates market forces over time.
Most startup founders focus on funding as a goal in itself. When the funding is secured, naturally there is glee all around. Here’s where you need to turn this mindset on its head. Once funded, you may often find that you’ve burnt through your cash pile quicker than you can say “venture capital”.
Here’s where airtight cash management comes in. Expenses in a startup are notorious for two things: they always seem to outpace revenues; and the biggest expenses always tend to drop in unannounced right when your pockets are all wrung out. This wouldn’t come as a surprise if you map your expected expenses well in advance every month and keep a sharp eye out for those non-operating expenses. This calls for accounting discipline and an ability to prioritise spends.
Funded startups are usually flush with money in the first year after funding. When it comes to use of these funds, the dilemma is usually about whether to expand operations or perfect the solution in hand. Bootstrapped startups normally face a different tradeoff—that between marketing expenses and paying the monthly bills.Knowing what to do in such situations requires the startup founder to be a wizard at scenario analysis and what-if analysis. A strong sense of cost-versus-benefit and conviction about one’s own decisions should hold the entrepreneur in good stead in such cases.
While many of these abilities can be internalised, entrepreneurs may sometimes find it prudent to lean on professional help to string in the missing pieces.
Consult our expert. Take help of our tools. Be part of our community. Discover best suited financial products with us.
Stay tuned to the world of finance