Startup finance

The first thing when I came back to Bangalore, I was amazed to find the sheer number of startups and the buzzing nature of entrepreneurship in the city. We are indeed spoilt (vis-a-vis) other cities in India to have such a good ecosystem.

I thought I would share some of my thoughts in relation to the first few things you need to think about when your starting up your own company

1. Save enough money for 18 months for your own personal expenses (That's typically by when either your business model is working/failing/ or you have managed to raise funding)
2. Making a cash flow statement. This can be as simple as listing what all expenses you expect and what you expect to sell and minus the two. The important but simple task most people dont do, is after making one is
to maintain another column of actual. You then update your subsequent months (because let's face it your estimate is only that - an ESTIMATE!)

3. Break even - this basically means the below:-

Let's say a typical ecommerce business. You have spent about 35k in developing the website. Maybe other 15k in advertising and perhaps maybe another 5 - 6 lakhs in buying up inventory

So that means that you need to earn 6.5 lakhs in total to break even - to make back all the money you have put into the business. This becomes crucial into your pricing because lets say for example the above business was selling shampoos online. (Courtesy of my wife who keeps complaining that I don't wash my hair enough!)

Let's say you price them at Rs100/- per bottle. Then to reach your break even point you need to sell - Rs 6.5 lakh / Rs 100 = 6500 bottles. I know all of this sounds really simple and you must be like I am sure all startups know this. Unfortunately most startups dont know how to price their product. Often a kickass product will still fail even with brilliant marketing if it's not priced right (of course this is the blank faced accountant in me saying this :) )

4. Profit 
In very simple terms all this mean is You sell shampoos worth 6.5 Lakhs and minus all the costs to produce and market it etc (maybe all this shampoo talk is coming from 2 states - hmm). The net sum of money which you make after this is called profit. Oops I forgot we have to pay some money to the government for services they dont provide called as tax. So you pay tax on this profit and then you get something called profit after tax.


Well I think that's it for now. Maybe next week, I ll review some interesting startups that caught my eye.

Over and out.

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