The world of Start-ups is blooming and one can notice such a volcanic eruption of technology start-ups all around the industry. The major difference between a start-up and a full-fledged business is the availability of and easy access to funds. A fully grown business or a new business floated by an existing business group would not face the same level of complexity that a start-up faces from a finance perspective. Start-ups are the organizations with bright ideas, with a dream to make the ideas big and aim at solving a problem faced by a larger section of the society. With bright ideas comes specialisation and often such specialisation does not factor in the financial aspects that could act as a make or break difference for the future of start-ups.
In this article, I go through the top 5 points that a start-up should consider:
- Choose a correct finance and accounting partner: A start-up should consider finance and accounts as a partner in its growth path. Invest in the right relationship who can yield the right results to you. Remember that in the first round of funding, only the due diligence and documentation would come to your rescue. It is not only the idea but also the records and documentation that you maintain which would determine the attractiveness of the target.
- Focus on business not on taxes: Tax is a consequence of doing business and not the business itself. Currently, corporate tax @ 25% is a globally competitive rate and an entrepreneur should not be building various structures and complicating the ease of doing business to save certain taxes. Believe in tax planning and not avoidance or evasion. There is a startup tax deduction available (Section 80IAC of the Income-tax Act), the benefit of which can be taken by complying with all the requirements.
- Invest in right avenues: Not all startups are Flipkart and Amazon. You have your own capability and ability to solve the problem identified by you through your solution. Many start-ups focus on spending and burning cash to scale up by looking at the Flipkart model. Focus on investment and not on spending. Understand the return that your start-up would receive on the investment made by you. Investors would be interested in you and your idea and not the habit of spending on marketing budgets.
- Build capabilities- Success would follow: Most of the innovators have a vision of how successful their business would be and what kind of top line it would drive. If you really want to impress the investors and the market, focus on quality including your and your product’s capability. Keep improvising and innovating. Success would follow. Showcase and practice yourself as an entrepreneur.
- Financial literacy: Every tech guy should have a basic knowledge of finance. An asset is something that earns money for you. A liability is something that takes away money from you. For example- A car that you buy for your pleasure and driving is a liability and not an asset, as it would take away money from you in terms of fuel and maintenance. However, if you put that car to use to earn rentals on the car, the liability becomes an asset. The decisions between rent or buy, fixed cost vs. variable etc would be right in your entrepreneurial journey if you have a basic financial literacy. Financial literacy is different than knowledge of accounting and finance.
While there could be many more points of financial wisdom, these are my top five takes to the budding entrepreneurs.
Hope you would enjoy it.
In case you need any financial mentoring or assistance, you can reach me at akshaykenkre@gmail.com.
Thank You,
CA. Akshay Kenkre