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How to Take Care of Financial Health of Your Startup?

Narendra Kumar

| Updated: Jan 30, 2018 | Category: Financial Reporting, Startup

Financial Health

Once the business is launched, raising fund and managing that fund is very vital. Most of the entrepreneur fails within 1st year and almost 50% of the startup business goes out of cash. Hence to avoid such pitfalls and to get the business running smoothly the entities has to tackle the situation of cash deficiency. Below is a few technique how the entity can raise money and maintain the good financial health startup:

Planning and Budgeting

Every business deal and agreement involve risk, such risk also carries potential gain. Hence, it is very important for entities to be well prepared in advance for all kinds of risks. For this, planning is essential. Planning creates a base to take decisions considering the risk involved. Then the organization can deal with the worst-case scenarios.

Apart from planning, entities have to plan allocation of budget. This will help to track cash liquidity, expenses, revenue needed for growing the business activity, and meeting the organizational goals. Sometimes the expenses are hidden, proper budgeting mitigates such hidden cost and reduces risk. The business plan and budget should be regularly monitored and ensure that it’s keeping the business growth and performance.

Understand the facts of Financial Situation

Every entity should have expert panel or individuals who have sound knowledge of finance. Knowing the exact situation of business will help to make smart decisions and increase the chances of achieving goals. Maintaining records of financial will help to give a clear idea of business performance. Moreover, it identifies the problem and provides an appropriate solution.

financial health

Revenue is Growing

When looking at the profit and loss statement, there should be a steady growth of profit. There should not be a huge gap in profitability as compared to the earlier month, but a slight change in percentage shows the good financial stability of the entity.

Expenses are Staying Uniform

As and when the business grows, it may give rise to expense. But such change in expense should be in-line with an increase in the revenue generation. If there is an increase in sales or profit generation by 5% the expenses should not be more than 5%. The proportion of sales generation and revenue must be equal.

Debt Ratios Should Be Low

The debt to asset ratio and debt to equity ratio should be minimal. This ratio specifies how much the business owes versus how much the business is worth. The ideal ratio for maintaining a debt to assets is 2:1 or lower is preferable.

Competent advisor

For setting up a business, one should always predict its pros and cons. A dedicated resource for predicting the financial stability should be hired. This will help the business to grow the business by taking appropriate steps at right time, including the investment activities to be carried out by the company.

Working with new Clients and Repeat Customer

The cost to acquire new clients is higher than the cost to work with the same customer. The steady stream of new clients and repeat customer demonstrate the business have multiple options for generating revenue.

Conclusion

In today’s modern world, financial management and raising fund is challenging for startup. The entrepreneur should take smart decisions to navigate through tricky financial waters and manage Financial Health effectively.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

Business Plan Consultant


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