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Dec 27, 2019 | Source: AxisDirect-O-Nomics
The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.
India is currently in an ‘economic growth’ sweet spot. Favorable regulations and demographic profile have strengthened the foundation to further build on the Indian growth story. Currently standing at $2.8 trillion, the Indian economy is estimated to join the $5 trillion club by 2025. This opens up a world of possibilities for young and dynamic entrepreneurs who seek to grab a share of this pie by offering unique solutions to the unique needs of a growing economy.
Startups, as centers of innovation and employment generation, are playing a key role in invigorating the Indian economy. With opportunities galore, most Indian startups are eyeing to expand their presence to capitalize on the potential that the economy has to offer. To succeed in this endeavor, a strong financial base is imperative.
Hiring right talent, expanding to new locations, adding more depth to the product/service offerings - all require funds. Against this backdrop, it is no surprise that most discussions about the startup ecosystem focus on funding. While adding to the capital through additional funding or going public is important to finance the growth plans, it is equally crucial to keep the financial house in order for effective utilization of available funds and preparing a strong base for scaling up in future. Few steps that a startup can take towards this end are:
Conviction in the business idea
Starting a business is always fraught with challenges. Early-stage startups, in particular, face a number of issues on the operational front which tend to dampen the spirits. In such a scenario, it is the conviction of an entrepreneur in the business idea that shows the way to overcome all adversities. A strong belief in the idea backed by a well-defined business strategy will serve as a guide when faced with a roadblock. When the time to make a tough financial call will arise, your conviction in your business will help you to take the decision that serves your business interest.
Check competition & entry barriers
Though it is necessary to believe in the business idea and work towards it, it is also crucial for a startup to analyze the number of players who are there in the same business. Try to create entry barriers to keep competition out as less competition means more profitability for your business. It is an established fact that the business with technological advancements and impenetrable moats survives the longest and prospers.
Detailed financial plan
While a clear business plan is essential for success, a solid financial model is equally crucial. Do thorough research and take external help, if need be, to create a plan which clearly defines your funding requirements and growth projections. A well-thought financial plan is a blueprint of your startup’s journey. It helps you to plan your operations more efficiently, assess your mid-to-long-term performance and serve as a reference check for important managerial decisions. A detailed financial plan brings in more discipline, making you wary of unnecessary expenses and ensuring optimum utilization of available resources. It also serves to impress potential investors with the clarity of your financial understanding.
Well established accounting practices
For the long-term success of your business, apart from the passion and conviction, you need to establish sound accounting practices to keep a tab on the financial health of your organization. Understanding cash flows or analyzing profitability may not come easily to all. Hiring professionals to manage this function can give you a better perspective on how your business is faring financially. With a proper accounting system in place, you can analyze your current financial and make necessary adjustments to realize your future goals. You can use the financial information, brought to light by your accounting practices, to your advantage while ensuring the best utilization of your resources.
Plan your taxes well
Unplanned taxes can serve as a drain on your financial resources and create a cash crunch. Tax planning can improve your cash flow management and ensure that your outflows are in line with your business goals. Entrepreneurs must thoroughly understand their tax structure. There are various tax exemptions announced by the government for encouraging startups. Ensure that you are capitalizing on these tax rebates. By projecting your tax payouts, you can systematically accumulate enough funds to pay off these obligations when due, without creating a lump sum outflow.
Review your process from time to time
Processes are basically the best industry practices that help businesses to streamline their functions and gather the requisite intelligence to improve constantly. It, therefore, becomes important to review which processes are working for the business and which needs to be tweaked to cater to specific business needs. A review of your accounting and financial process can provide key insights on how to improve overall efficiency and minimize wastage of resources. It can also help you to identify and fix loopholes in your cash flows and revenue streams to ensure that you stay true to your business and financial goals.
Compliance
Adhering to the regulatory requirements may seem to be quite overwhelming for an entrepreneur. However, overlooking this key aspect can create complications in securing funding in the future. Investors feel confident to back an enterprise that is compliant as the trust factor tends to be higher.
The ultimate goal of a business is scalability, to bring in more revenues and finally become a successful enterprise. With careful management of your finances, you can secure sustainable growth that every startup aspires for.
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