Personal Financial Management for Start-Up

However, as simple as it may be to jump onto the startup bandwagon, it is equally difficult for new entrepreneurs to hold their ground without proper planning. Financial planning in the startup space is a  must and should ideally begin even before the business is at its nascent phase. Let us understand the importance of financial planning before starting up a business with the help of these tips-

One of the primary steps of converting an idea into a tangible venture is understanding the costs associated with it. Along with the obvious direct expenditures involved, there may be certain hidden costs and opportunity costs that get identified during this step. Estimating startup costs enables an entrepreneur to contemplate the requirement for funding and chalk out potential sources of funding.

Every startup needs access to capital, whether for funding product development, acquiring equipment, or paying salaries to its employees. Most entrepreneurs resort to bank loans as the primary source of money.However, there are various innovative measures of raising funds for a startup like peer-to-peer lending, crowdfunding, micro-loans, vendor financing, etc. Figuring out the owner’s capital or personal finances is a key preliminary step in understanding potential funding needs for a startup.

Growing businesses often don’t realise the avenues the scope of accounting required. Startups must record every single expense as businesses do not usually generate income from the very beginning. These expenses can be claimed at a later stage. This will also help monitor and track expenses that are hitting the business from unexpected areas. This activity also makes the task of creating a budget easier.

Sticking to budgets is as important as setting them. Having access to exorbitant amounts of money raised during the initial rounds of funding may tempt new entrepreneurs to cash in dividends, rake in bigger salaries or make unnecessary expenditures. Initially, keeping the fixed burn to a minimum can provide a longer runway.

Working towards a startup idea can sometimes be like shooting arrows in the dark. It is imperative to establish short-term and long-term goals and quantify them in terms of the number of clients, expected revenue, projected earnings, or a well-planned exit route. This being established, startups are built on ideas, and often young firms have to pivot from their original path. However, such decisions should be taken after conducting a detailed cost-benefit analysis.Opportunities for startups in their initial stages can be very hit and miss, which makes clear and quantifiable planning all the more critical.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.