Optimal allocation of resources, both human and physical, is what a start-up with limited resources has to constantly manage. And for a function as critical as finance, the situation becomes even more critical to handle. When working under constraints, how do you ensure best financial planning and management for your business?
This requires deliberate planning and strategies that optimise the potential of your finance people. After all business is about best utilisation of your resources, isn’t it?
Maintaining Liquidity-
Ensuring short and long term solvency of a start-up while maintaining the idle cash balance can help you prevent your cost of funds from rising. Finance guys of your company can help you strike a perfect liquidity balance in these two ways-
1) Short term solvency- Minimum working capital required to do your business can be ensured by keeping a close watch on your inflows and outflows. Matching your cash cycle with payments is what you should also try. Avail credit by capitalizing on your credibility.
2) Long term solvency-
Long term solvency can be ensured by keeping a balanced capital structure that suits your future requirements and having minimum possible cost of capital. Discussing your growth and expansion plans with your finance head can help him prepare contingent plans for your business.
Improving Profitability-
Being a start-up, you need to closely watch your expenses so that your books can keep showing profits.
3) Planning and Controlling Budget: Always prepare budgets for each period in advance. Having standards set and continuous monitoring are must to prevent deviations. In this way you can restrict expenses and control abnormalities.
Capital Budgeting, Rationing and Investments-
To grab the right opportunity when it comes a start-up needs to have strong capital rationing strategies in place. Following are some of the steps to ensure best investment decisions:
4) Explore all alternatives: Finance department should explore all possible options for expansions, buy or make decisions, replace or repair decisions etc. You can use methods like NPV, IRR or payback period etc. to evaluate and select the best option.
5) Funding for growth:
Having your growth plans in place, next important question is how the fund your growth plans? Continuous deliberation over your plans with your finance guys can help you ensure success. The finance head can accordingly plan about how much to retain, growth-equity mix etc.
So even if you are a small business with limited resources, you can do best financial planning and management for your business by hiring a financial analyst.
