Finance is the life line of any business. To start, sustain and succeed any organisation proper management of funds is important. For start-ups to establish themselves in the market and survive the stiff competitive environment, regular and steady stream of funds is a pre-requisite. The businesses need money to enter the market, undertake day to day operational activities, production, expand its activities, research and development activities. Several start-ups fail during the initial years of its establishment owing to the shortage of funds or irregularity of cash flows. 3 profit-making small businesses you can start under Rs 20,000.
Proper management of funds is important for long term survival of the business. Overfunding and underfunding are both harmful of the working on the enterprise. Lack of funds leads to interruption of business activities that leads to huge losses to the firm, while the excessive of funds leads to opportunity cost. So proper management of funds is crucial for success of the business. Here are few tips Young Entrepreneurs can follow to manage their finances –
Separate Your Personal and Professional Finances
The first and most important step of managing the funds is to keep the personal and professional money separate. Following the separate entity accounting principle, the entrepreneur should maintain separate accounts for the firm in its name and should not use funds received for the start-up for her personal expenditure. This will be helpful while calculating taxes and filing return as well.
Set-Up an Emergency Fund
The business environment is full of risks and uncertainties. There are continuous macro and micro environment threats that a start-up has to face. In order to cope up with the dynamic and ever changing ecosystem, an entrepreneur should make sure to establish an emergency fund or a reserve to meet such unexpected changes. Even if the business is earning huge profits, it is always advisable to keep aside some portion of money for contingencies.
Look for Diversified Sources of Funding
Though it is also easier to manage the equity funds, but the entrepreneur should not over look debt funding as well. Borrowed funds force the owner to make informed decision and wise investment choices. The capital structure of the enterprise should be a perfect mix of both owned and borrowed capital. Various capital structure theories have proved that a leveraged capital structure leads to higher valuation of the firm. 3 Futuristic Business Ideas for 2021 and Beyond!
Monitor the Expense
Another crucial aspect of managing the funds is to keep a tab on the expenditure. Though a firm has to undertake several expenditure in the initial stages of its life, an entrepreneur needs to make sure that no unnecessary expenditure is incurred. The focus should be on cost cutting and wastage reduction. Follow the principle of money saved is money earned.
Seek Professional Help
Not everyone understands the complexities of managing the finances. There are several financial analyst and advisors who will be able to provide a better guidance on the matters related to money and investment. They also help in ensuring regular and interrupted cash flows. An entrepreneur should not hesitate in seeking external professional help during the initial years of the business.
Finance is important to meet various capital requirements of the business at its different stages. Hence, an entrepreneur should follow ensure proper and efficient management of the funds to long term survival in the business environment.