September 18, 2019
5 min read
Read our 7 key tips to check and manage the financial health of a startup in the most accurate and efficient manner.
Launching a new business opens different avenues for an entrepreneur, and also brings the responsibilities of management each and every aspects of the business cautiously. One of the key aspects of turning a business into a success story is raising fresh funds for the startup and its financial management. It is essential to keep the financial health of a company out of the red zone and maintain a high financial health score to keep the business running efficiently.
Studies show that around 60% of startups run out of cash before they are even able to launch their product and it all boils down to poor financial management. Reports also show that out of this 60%, around 80% of startups fail in their nascent or within their first year when they’re unable to maintain a good financial health of the company.
There are several financial health indicators that the business needs to keep an eye on to avoid falling into the financial pit. Here are 7 key tips to check and manage the financial health of a startup in the most accurate and efficient manner:
It is pertinent for a business to lay down a plan in advance to mitigate financial risks associated with business transactions, product launch or escalation. To do this, a startup must prepare a detailed budget for each department and follow the budget closely so as to not overspend on one department while underspending on the other. Planning and following a financial budget can enable a startup in maintaining its financial health score without worrying about the risks.
Planning and following a budget in every department will not be fruitful unless it is spent on activities that help in growing the business, reaching more customers, increasing profits and decreasing expenses. There are times when unexpected hidden costs eat away the budget of a company, making it important for the startup to regularly track where the budget is being spent.
Evaluating the financial position of the business is essential to understand the startup’s standing. Consulting a financial consultant in India can help the startup in getting in-depth knowledge of its financial position and how it can improve its financial health score. Talking to a financial advisor can help the entrepreneur in understanding the financial weaknesses and strengths of their business.
When it comes to the financial health of a company, the Financial Statements are clear indicators of how well the startup is doing. If the Profit and Loss Report indicates a constant profit growth, the financial health of the startup is good; when the report indicates constant losses or huge gaps in profits, the financial health needs to be checked at the earliest.
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One of the factors that decrease the financial health score of a company is its expenses. The startup must keep its expenses in check and in-line with the profits of the business. The business must not increase its expenses more than its profits because it is a recipe for disaster when the expenses of a business overtake the revenue generated. There will come a point when the business runs out of its funds if it paces its expenses with its profits.
The startup must keep its debts to a minimum during its initial stages. Repaying debts can eat away the revenue generated by the business, leaving no cash flow for the startup. High debt amount can lead to the poor financial health of a company.
Having an experienced financial consultant who can guide the business through complicated financial roadmap can help a startup in avoiding financial predicaments. A financial consultant can provide the right advice the right time regarding the channels of raising funds, investment, budget management, financial planning and financial risk analysis.
SeekWiser has created a platform for startups and small businesses to find business consultants in India as well as across the globe. Startups can connect with the best financial consultants in India who can provide the right approach for managing the financial health of the company in the most efficient and effective manner. Call SeekWiser at +91-8010880066 or send an email at [email protected] to get support in financial matters.
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