A great idea requires a particular way of thinking, and its implementation requires solid financial backing.
Starting a business is like an exciting adventure. Even if you have a fantastic idea and a great team, there is no guarantee to know if you will succeed. However, there is something you can do to boost your chances of making it work by setting up a robust financial base.
Imagine it like building a strong house. You would need –
- Quality materials (Money),
- A solid plan (Budget) and
- A strategy to make sure you do not run out of supplies (Financial management).
If you get these things right, your business is more likely to stay standing and thrive….
As research, state that
- 9 out of 10 startups fail (source: Startup Genome ), and
- 44% of failures were caused by running out of money (source : cnbc)
For the startup founder, saying goodbye to initial vision may be difficult, but pivoting is often the key to survival and success. It demonstrates founders,
- Resilience,
- Adaptability, and
- Commitment to handling the challenging business environment..
Pivoting in the startup world is like navigating through a storm. It is a strategic shift in business model or direction, often driven by changing market conditions, customer feedback, or internal challenges. By embracing change and pursuing new strategies, entrepreneurs not only strengthen financial foundation but also become a more attractive prospect for investors. So, do not be afraid to pivot when necessary.
PrimeOs (shark tank season 2 ) and Wiom, two of Auxano’s portfolio companies are the best examples of pivoting, and both have recently secured more capital at competitive valuations.
Remember, though, running a business is not just about spending money. It is also about making it.
Additionally, the entrepreneur must also consider few financial management mantras in order to have a solid financial foundation:
Budgeting — The Blueprint for Your Success:
Budgeting is not just about penny-pinching; it is a strategic exercise in resource optimization. It’s the compass that guides your startup through the unpredictable seas of entrepreneurship,
- helping you make informed decisions,
- prioritize spending, and
- navigate through challenges.
It is about where your money will go and assists you in limiting your expenditures.
Money In vs. Money Out — Cash Flow
In the world of startups, the initial years of fundraising to pursue faster growth at all costs for a higher valuation causes the business to spend left right center, which puts it into no cash runway.
However, for a business to survive, cash is its lifeblood, so it must be managed carefully.
Money should flow in (revenue) more than it flows out (expenses).
If your expenses outweigh your revenue (Cash Burn), it’s like running out of fuel in the middle of nowhere.
Maintaining your financial discipline is crucial, even when things are going well. This entails keeping to your spending plan and refraining from irrational purchases.
Navigating Risks — Risk Management
Prepare for bumps in the road. Like a car insurance policy, consider different types of business insurance. It protects you from unexpected accidents along your journey, such as legal disputes or property damage.
As a VC firm Auxano, recommends the portfolio companies to have director and officer Insurance (D&O), property Insurance, and key man Insurance to protect against any future unforeseen circumstances.
Regular Review — Tending to Your Financial Garden:
Your financial plan isn’t a one-time thing; it’s a living document. Regularly review and adjust it as your business grows and changes.
As part of our approach in Auxano, we have monthly and quarterly business review calls with our portfolio firms to discuss the business growth in detail and keep a close check on –
- Revenue for the month
- Expense/Burn
- Cash Runway
- Monthly KPIs
- Hits of the month
- Misses of the month
- Support required
This enables the founder to maintain solid financial standing while keeping a close eye on the company’s progress and any room for improvement..
The Savings Safety Net — Emergency Fund
Just as you keep an umbrella handy for unexpected rain; your business needs an emergency fund for unforeseen financial challenges. It is your safety cushion when things get tough. While raising capital, raise additional funds( 2 quarters additional runway)to take care of any unforeseen eventualities. ( Ask Wiom).
Way forward –
In conclusion, building a strong financial foundation for your startup isn’t rocket science; it’s like tending to a garden. With careful planning, smart spending, and a watchful eye on your finances, you can create a solid base for your business to thrive. So, roll up your sleeves, put on your gardening gloves, and start cultivating your startup’s financial success today.
The jockey or the horse are not always to blame. If you are selling something, you need to think about how much you will make from it and if that is enough to cover your costs and hopefully make a profit.
Author:
Rakesh Rana
