May 7, 2007

Financial Management for a Startup Firm

Few days back,I had mentioned about Guest Blogging and my first guest blogger is Ranjan.Now let us have a look at Ranjan's profile or should I say,this is how Ranjan describes himself biggrin

About Ranjan:
Ranjan is one of the older bloggers (He's 39) and brings more than 16 years of work experience in Insurance, Housing Finance and Investment industry with himself. He likes to post his thoughts on topics like Personal Finance and Business Management through his blog

Let us now look as to what does he have for us in store.But before that,let me answer the question "Why Ranjan?" wink

Why I approached Ranjan to write on Finance?
IMHO many of us are techie guys and we don't think much beyond technology.But when it comes to companies or ideas , finance also turns out to be a very important aspect,which is a black box to me and may be it would be the same to many of us.Hence,Ranjan was the right person to write on the same.

Ranjan has tried to showcase some of the points which should be considered by Entrepreneurs(at least first generation) while starting off...Interesting let's jump to the crux of the article

(Note : "I" in the article refers to Ranjan)

Financial Management for a Startup Firm:

Is it important for a startup to understand corporate financial information, evaluate corporate financial performance and understand the language of accounting and finance?

I feel that the idea of a startup is a romantic and sexy one till you start the start up. Once you are confident of your idea and think it’s time to make it happen, it’s time to do some reality checks.

Let us ask the “bringing back to Earth” questions with a financial angle. In fact the business plan, Sales forecast, ROI, Break even analysis etc.
  1. How much money is needed to launch the project? What are the short term working capital needs? Here you try to understand your capital requirements.
  2. What return on investment can the business bring? This is the first question a VC would ask. You have to work on the ROI that your business can bring.
  3. What could be the possible source of funds? Friends, relatives, VC or a Bank?
  4. What are the projected Sales forecast and the likely expenses? You may do well to build a projected cash flow statement for the next 1-3 years.
  5. When do you look to cover your initial costs? In other words, when do you break even?
  6. Can you build a projected balance sheet for your business?

Difficult questions? Maybe yes, but if you are not prepared to answer them or face them, the startup may remain just a pipe dream.

If success was easy it would no longer be success. Admittedly, though finding the answers is not like rocket science, it looks entirely geeky to many of us.

There are no ready made answers. It follows after you are able to define your business, review your competitive environment and do a SWOT analysis for yourself.

And tools? Start with a pen and a paper, quickly graduate to Excel sheet or any other spreadsheet and you are on your way!! Getting started is all you need to worry about!! haven't we heard Goethe's couplet: Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.

Finally, thanks Ranjan for taking time off your busy schedule and contributing to this blog.I (Himanshu) hope you found this small piece of information informative , just as I did.

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At May 7, 2007, 2:27:00 PM , Blogger Ranjan said...

Thanks Himanshu. There are some very rich posts by Rajesh Jain on the issue of Capital and venture Link:

Very illuminating blog posts by Rajesh Jain


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