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How Budding Fintech Entrepreneurs Can Manage Funding Constraints Maintaining adequate cash flows in the early stages of a business is critical for success

By Anil Chawla

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For any entrepreneur to succeed, the two basic elements are a good business plan and ample funding. Even if both these aspects are managed, however, it is still necessary to manage the finances properly.

Accordingly, money management skills are key. Be it buying inventories, paying salaries or managing accounts, everything must be done diligently to ensure proper cash flows. Such skills are vital for emerging fintech entrepreneurs, who are expected to be adept at managing finances.

Here are six money management tips for budding fintech entrepreneurs to ascertain funding never becomes a major issue:

Make budgets mandatory: To manage business finances astutely, make a monthly, quarterly, half-yearly and annual budget. While some flexibility can be allowed for marginally exceeding the budget in the first three cycles, if necessary, the annual budget must adhere to the goals outlined at the beginning of the business cycle. Therefore, every expense head should outline specific spending limits.

Separate personal and professional accounts: Emerging entrepreneurs may make the cardinal mistake of maintaining a single account for both personal and professional needs. This should be avoided at all costs because it may not be possible to accurately track personal and business expenses. Having a separate business account prevents unwanted confusion, besides increasing one's credibility with customers, vendors and investors. Moreover, future loan prospects won't be compromised.

Set predetermined goals: Without pre-set objectives, any business is akin to a sail-less boat on the high seas. It is only possible to succeed if an enterprise operates as per a specific business roadmap. While the overarching goal can be most ambitious, set smaller more manageable monthly goals that can keep getting bigger during the quarterly, half-yearly and annual cycle. But don't forget that the funding support must match these goals to ensure eventual success.

Manage outstanding payments: No business can prosper if outstanding payments keep growing. Draw a red line when it comes to receiving payments within a specific cycle. Without this, smooth cash flows will be affected, jeopardising the business.

Understand the significance of credit: As an entrepreneur, it is imperative to maintain a healthy credit score since this can facilitate funding at more competitive interest rates. Lines of credit and small business loans can mark the difference between success and failure for new enterprises. The higher the score, the better one's prospects of securing a bigger loan at a lower interest rate. A high credit score can be obtained by not running up high balances, paying all bills/loan EMIs on time and keeping old accounts open since these validate an elongated credit history.

Control cash flows and spending: Running out of cash remains a major reason why new enterprises fail. Consequently, it is essential to track how and where every rupee is spent. A conservative approach to managing cash flows will pay robust dividends in the long run. Investing in tony offices and top-notch technology is best avoided in the early stages. The mantra should be 'lease, rather than purchase'. The capital savings can then be channelled into business growth.

While the above guidelines are not comprehensive, nevertheless these will be crucial in ensuring first-time fintech entrepreneurs don't flounder due to funding constraints.

Anil Chawla

Founder, Clix Capital

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