A Financial Literacy Initiative by FinFix
Start-ups have become quite a rage in modern times. The younger generation is witnessing entrepreneurs coming to the fore each day. They even find financers to back their ideologies and this gives birth to a start-up. Though start-ups have become very common, the process is quite challenging. Despite careful planning and enough funds, many start-ups have bitten the dust.
Here are 10 financial tips you can benefit from:
1. Make a complete business proposal for prospective funding
Investors and venture capitalists invest in a start-up that looks promising to them. If you want to arrange capital for your start-up, you need to have a business proposal. Your proposal should have all the details of the business, the prospective profitability, costs involved, expected time to break-even, et al. Only with a detailed proposal can you expect investors to lend their hard-earned money for your venture.
2. Estimate the initial fixed costs
When you start your business, you would incur very high costs on establishing it. You should estimate such costs to find out how much funding would be required. Along with these costs, make a projection of your business for the next five years. This would give you an idea of the costs required to run your business over the next few years; and so, you can arrange funding accordingly.
3. Fund your start-up yourself first
Before arranging for funds from outsiders, fund your start-up from your own sources. Your investments are also important, as you can retain ownership of your business up to a larger extent. So, use your savings, ask family and friends, get a business loan, do whatever you can to raise initial capital for your business.
4. Create a contingency fund
Even though you plan carefully, plans might backfire and cause serious financial implications both on your personal as well as business front. To tackle such unexpected financial complications, always have a contingency fund in place. Ideally, six months' worth of your revenue should be held in a contingency fund.
5. Plan your budget for the first year
The first year of the start-up is taxing. You have to launch your business, hire employees, market your products or services and attract customers. Therefore, you incur heavy costs. Make a budget of these costs and stick to it. When planning your budget, don't compromise on costs. First impression is the last one. If you make a big first impression on the market and prospective customers, you can pave the way for your start-up's success.
6. Cash-flow management is essential
The stability of any business depends on cash flow. If you don't generate sufficient funds, you cannot meet the operating expenses of your business. You end up in a credit trap, which might hamper your start-up's development. So, create a system to track the money coming into the business and also going out of it. Ensure that there is sufficient flow of funds.
7. Buy health insurance for yourself
Imagine this scene - your start-up is doing great when you fall ill and get hospitalized. Since your savings are tied-up in your start-up, you end up borrowing from your business to meet your hospitalisation costs. What happens then? Wouldn't your business suffer a cash crunch? Start-ups are, usually, cash-strapped in the initial phases. Withdrawing money from them is a complete no-no. You should, instead, buy a health insurance plan. The plan pays for your medical expenses and you can thus spare the funds invested in your business.
8. Protect your children's future too
Though your funds would be directed towards your start-up, don't forget about your children's future. You have to have a fund for meeting your children's higher education and marriage-related expenses. Allocate your funds towards these goals too. They are important.
9. Know the tax implications on your start-up
GST has been introduced, which is very important for businessmen. Since you are starting up your own business, you are becoming an entrepreneur. You would, thus, have to comply with all the tax rules for your business. Understand the tax implications of your business and file your returns by the stipulated time to avoid penalties.
10. Think of future prospects
While you are busy planning for your start-up, don't just look at the present situation and its requirements. Analyse your start-up's future potential. Assess the possible market reaction to your start-up's launch, project your business for the next five years, find out the potential of growth, etc. When you make forecasts about the future, you can prepare for any expected change. So, plan for the future too.
So, jump on the start-up bandwagon but have both feet planted on solid ground! Do the groundwork with these tips and be prepared to face the challenge of heading your business!