FINANCIAL MISTAKES BY START-UPS by Anil Lamba

For every startup that succeeds, there are many hundreds and thousands that fail despite being highly innovative and well-funded. The reasons are many, but most are related to financial mismanagement.

If budding entrepreneurs paid half as much attention to the financial aspect of their business idea, as that given to the technological, marketing, valuation and fund-raising aspects, the chances of survival and success would be far greater.

Here is a short list of what an entrepreneur should do to run a sustainable business?

Be clear about the revenue model

Much thought goes into the ‘idea’ that has captured the entrepreneur’s imagination and not enough attention is paid to the financials and the revenue modeling. Without a clear idea of how and from where the revenues are going to be generated, the venture would be a non-starter.

Businesses cannot be run for long on investors’ money alone. It is okay during the gestation period, but soon the business must generate enough revenues to at least meet the operational costs.

Generate Profits and not Sales

In those cases where there is an understanding of the revenues, the entire focus is on increasing top lines. Entrepreneurs must never forget that the business of running a business is not to generate sales but to make a profit. Selling is a means towards achieving an end, and the end is to make a decent, a healthy profit.

If your role-models are the Flipkarts and the Ubers of this world, with all energies concentrated on generating volumes while making cash losses per order/ride, you must also understand that you need to have very very deep pockets to continue doing that for any length of time. Chances are pretty strong that the business will go belly up well before a white knight investor comes along to invest his millions impressed by the sales volume.

While drawing up the business plan, there should be complete clarity on how the business is going to make profits.

Pay attention to the cash flows

One of the first lessons that an entrepreneur learns is that there is no connection between the profit that a business earns and the bank balance that it has. In fact, if there is a connection, it is inverse. The higher the profit, the lower the bank balance. (This article is too short for me to elaborate further, but take my word for it right now).

‘Where is the money?’ is a question that perpetually haunts an entrepreneur. Accountants tell you that the business is making impressive sales and profits, but where is the money! Why can’t you see it in the bank?

Well, you are making profit precisely because you money has been deployed. If you started hoarding it in the bank it would be a matter of time before you would stop making profit too.

There is no pleasure in making profit if at the end of the month you don’t have the money to pay salaries.

Always remember that successful businesses stand on two pillars:

 1) the ability to generate profit, and

2) the ability to effectively manage cash flow.

Working capital is very essential 

While evaluating the funds that a start-up needs, it is relatively easy to understand the amount of fixed capital required. But often the working capital requirement is not clearly understood. Consequently, many such ventures are starved of the working capital for sustaining the operations on a day-to-day basis.

Among those businesses that close down due to shortage of funds, a large percentage do so due to a shortage of working capital.

Working capital is required:

1. for purchasing materials and maintaining inventories (in case of organizations engaged in manufacturing/trading).

2. to meet day-to-day operational expenses.

3. And where goods and services are sold on credit, working capital is required to invest in your customers too.

It is suicidal to use short-term funds for long-term purposes

Start-ups must take great pains to ensure that only long-term funds are used for long-term purposes and short-term funds are used for short-term purposes.

Never ever use short-term funds for long-term purposes. It would be suicidal to do so.

If start-ups pay heed to the finance management aspect of their business it will go a long way towards sustaining their venture and making it a success.

Source:https://lamconschool.com/rookie-financial-mistakes-by-start-ups/

The Importance of Brand Positioning

(image source: http://garlicmediagroup.com/why-is-branding-important/)

Friends, I like to start my article either with story or fact. And many times I said where there is a truth there is a RAHUL. So, let’s start with one brutal fact that many of us were not born with the golden spoon. And I was also one of them. Once upon a time my father was a farmer and then gradually he turns into banker. In my childhood, sometimes my mom told that how they spent their life in their childhood as well as their beginning in SURAT city. My dad had seen different shades of the life. Gradually my father became financially stronger. And he had made up his mind that whatever he didn’t achieve in his life, he will provide to his children.

We all are very well aware that after 1990, many of us have seen the growth in Indian Economy. During that time disposable income were increased. And we used that income to buy some branded things. I know that I was using branded things during education whether it was pencil or a pen. I am also confident that my father had never used any branded things. But if we consider the current scenario then in this modern era we want all branded things. If I start from our morning routine activities then we want branded toothpaste, cloths, shoes, we people always prefer branded restaurant, saloon for, beauty parlors. I am always surprised that we want branded artificial nimbu pani whereas original Nimbu pani we prefer to wash our hand instead of drinking. We can say that anyone who was born after 2000, is called Brand Generation. Because I still remembered that when I was kid, I used to go Bhagal (One area in Surat where there are many retailers) to purchase my T-shirts. If I am talking about my daughter then she will prefer mall more willingly than that types of area because from her childhood she will see mall with branded stores. As she will grow, she selects branded goods.

Many of us are not aware that big branded stores like, Star Bazzar, Reliance, More etc, are not for us. They are targeting the generation who born after 2000. I still remembered that one of my client who was in Vegetable business. He was supplying vegetables to these brands with 10Rs kg where they were sold at 8 Rs. Kg. So when I researched why they were selling in loss. Then I came to know that actually they are targeting kids (who were born after 2000) because from their childhood they used to visit big malls and branded stores.  Hence whosoever is not concentrating on branding, they will not survive in near future. Sometimes I was surprised when company is known by his/her entrepreneur instead of brand. We have to make sure that brand image should be developed. If we are retailer then make a brand of your store like “Mcdonalad”, “Maa & Baby”, If you are the manufacturer then make a brand of your product like “APPLE”. 

As this generation will grow, they will prefer branded products. It means “sell of branded product will increase” and “unbranded product will decrease”. Many of entrepreneurs believed that if there business is not growing it which is called as “recession”. Actually it is not recession because somebody is selling and they are not. Customer is buying from others. Till yesterday they were gaining good customer attention. As competition increased they felt difficult to survive. If we want to check whether this is recession period then check your monthly expenses which you will notice to be increasing. Now people do not prefer traditional goods and traditional selling style. We have to change with the time. We have to work on increasing customer base service and how to create brand image. We have to work on it.

Remember one thing doing a business without knowledge is a superseded idea. Each Industry is getting organized. If you are not working on to build a brand, you are already out dated.