By S. Ravi, Former Chairman of BSE, Founder and Managing Partner of Ravi Rajan & Co.

Embroker’s analysis for 2022 estimates that 90% of start-ups fail – withfinancial mismanagement or running out of money being one of the main causes.

It is an undeniable fact that start-ups do depend greatly on financial support,whether it be from banks, investors, or personal sources. The handling of heavy cash influxes may sometimes become difficult for the start-up and thus itcollapses under the strain.Financial management is as crucial as challenging it can be for a neophyte at business.Besides managing duties like communications, sales, and marketing, managing money should also be on the top priority list for any new business.

Importance of wise finance management

New businesses must learn to manage their finances because it will help them attain their goals in a much quicker time. The following are some of the factors that make financial management crucial for businesses:

• Brings about economic stability

• Contributes to efficient business planning

• Aids in acquisition and allocation of monies

• Sharpens decision-making ability over money-related matters

• Reduces expenditure

• Increases the company’s value and profitability

• Makes the company’s vision for future growth clearer

Why start-ups fail

As per the data from Invest India there are over 77,000 DPIIT-recognised startups  across 656 districs of India as on 29th August 2022. With start-ups mushrooming from different parts of the country, India has emerged as the third largest eco-system for start-ups.

But the pitfalls for start-ups come because of numerous factors contributing to the relatively high failure rates, and these are:

• Lack of a demand-meeting product or service

• Insufficient market study or awareness

• Poorly intuited and applied strategies

• Skills or knowledge gap

• Absence of timely guidance

• Cash flow issues

Speaking of the cash flow factor in particular, a lot of businesses also crash if they are launched with inadequatefunds, unrealistically high product or service costs, or wrong sales estimates.

Tips to establish a successful business

·         Proper financial management system

You can’t use your personal account for your business transactionsand you mustn’t either. This will only add to confusion which may further grow into an unmanageable situation – especially during the tax season.There will also be a variety of documents to track, including invoices, receipts, and other forms of financial data. In order to prevent anything from getting lost in the confusion, make sure you have a system in place.

So set up a business account as your first step. Your next step will be hiring qualified staff for the accounting matters of your new business.

This won’t only help you gain better control of your fundsbut will also make your operations easier in the long run.

·         Record your progress

You must track your success in relation to the goals you set for your company in order to identify the areas where you are succeeding and those that require improvement.

There are many options that you can use when considering monitoring techniques, such as follows:

• Digital platforms and analytical tools for automated performance tracking

• Regular market research for sales comparison with your rivals

• Meetings and appraisals for better work output

·         Budgeting and forecasting

At every new year’s beginning, create a budget for your team to strive toward. From there, you can check in every three months to make sure everything is in order.

Financial forecasts, on the other hand, are essential for understanding the direction and goals for your start-up. It also facilitates identification of issues at the first stage itself as well as guides you where to make investments.

·         Cultivate enduring connections

To succeed in your business, having a solid network is really helpful. Establish connections with vendors, customers, affiliated businesses, and even your dependable accountant and banker. These are the individuals who will keep your company running. You may prefer to do it alone; still, keeping the right people happy will keep their support available to you whensoever necessary.

·         Unruffled cash flow

Last but not the least, take care of your cash. It is the soul of your business. Without it, your dream project will die. Even the greatest of ideas will fall through if you do not have adequate financial supplies to realize them.

In order to maintain sufficiency of your cash reserves to settle your financial commitments, be prompt in collecting the money and ensuring that everyone pays their share of the agreement on time. And when you invoice, be sure to use right credit control practices.Additionally, it’s crucial to agree on fair conditions with your suppliers upfront and abide by them.

Perfecting the knack of cash management is fundamental to a business not only at its starting point but throughout its run as well.

The secret to starting a successful business and staying in business is to learn from your own and other businesses’ faux pas. In order to dominate in your industry, thrive in the competition, understand where you stand, and pay attention to all raging trends. After all, in the wise words of Natasha Munson, “Monety, like emotions, is something you must control to keep your life/business on the right track.”