FINANCIAL MANAGEMENT INSIGHTS FOR STARTUPS

This is a feature interview between the #Founder/CEO of #TentmakerGhana, Henry Agyei Asare and an e-learning site. The interview held on 30th October, 2017 was to seek answers for some questions most startup Entrepreneurs ask as their main challenge to building their business to last.

1. What is Financial Management?

Financial Management (FM) is the efficient management of funds in a way that will accomplish the organisational objectives. Sound FM begins with budgeting through to reporting after auditing. FM is a function of management that targets every fund to specific planned expenditure.

 

2. How important should it be considered in relation to the lifespan of startups?

The critical success factors of every startup depend on three major pillars:

• Understanding of market – properly defined mission, vision, core values and strategy to scale and sustain.
• Management Capacity – the right human resource to lead and drive the vision to attainment. And
• Financial Management – strategies to ACQUIRE (raise and/or generate), RECORD and APPROPRIATE (spend) the funds of the startup at achieve its objectives.

It is therefore a very key aspect of every startup lifespan that if not properly handled will be detrimental to the sustainability of the startup. It is important for startups to know that the subject of FM is so important to the extent that large corporations dedicate a full department for it. Think about it, it is the management of the lifeblood of the organisation and so if you do not place importance on what is your blood, I do not know which else will be important.

3. What Module should startups put in place for spending?

FM has three important elements that every startup must avert their minds and attention on. These are: BUDGETING, RECORDING and REPORTING. Spending must always be made with these three key FM activities in mind. First BUDGET your financial activities, RECORD your financial activities and REPORT your financial activities. This is a whole course of study but in simple terms, if you manage your finance in line with the aforementioned procedure, you will be prudently managing your business and its activities.

4. What tool can startups make use of to ensure good record?

There are a number of financial reporting tools available, both customised and general. For startups, there are simple recording tools such Excel workbook that can be developed to suite their need but most importantly they must have receipt books, invoices, and payment vouchers to make simple transactional recordings easy. You can also buy exercise books to record transactions. All these can be digitised by creating financial recording templates and save them in folders that can be used as data when deploying financial management software.

 

5. What risk are involved in mismanagement in a startup?

This is obvious; collapse of the startup. In financial mismanagement, it will start with bankruptcy and dissolution of the business. If I want to look at it in terms of not adhering to the principles of BUDGETING, RECORDING and REPORTING as outlined above, I can mention a number of risks. To mention a few, I can say without BUDGETING you risk spending haphazardly and without priority, which end up making you loose money unnecessarily. Without RECORDING, you loose track of your spending and you make room for speculations and fraud and without REPORTING you risk speculation from users such as tax collectors and also not being able to raise funds or get financial support from financiers. All these risks lead to collapse of the startup.

 

6. How do we encourage records keeping in startups?

As I have already indicated in my responds to question 2) above, lack of proper FM is a recipe for startup collapse and this has accounted to; together with the other two; about six (6) out of ten (10) startups collapsing. There are three major ways to encourage records keeping in startups.

The first and my best recommendation is to start a business under guidance and mentorship at a Startup Incubator Hub. The hubs have carefully structured programs to ensure startups have maximum understanding of how to scale up and sustain growth and Financial Management is a key aspect of this training.

The second is to organise trainings and seminars on Financial Management as a means to expose these startup entrepreneurs to the importance of this business growth function.

The third and final is to offer Financial Management services to the startups as a means to keep them functioning and in line with best practices.

 

7. Should one Hire or Manage your finance personally?

I believe this is in relation to startups? if so I will say the decision will be determined by the size of business in terms of cashflow cycle and volume. When a business is at the startup stage, the cash flow is usually slow and limited in terms of sources and amount. The owner(s) or manager(s) can keep the records themselves until it is difficult by the regularity to keep. It is important to note that hiring someone to manage the finance is a cost factor and as a startup, it is important to as much as possible reduce your cost drivers or expenditure items. Entrepreneurs or startup managers should manage their funds when their company is starting. When the load becomes overwhelming, hire an administrator with the responsibility of financial management and put systems in place to guide the administrative person. When the management is becoming complex, you can hire an accountant to manage this aspect of the organisation.

One cost effective approach is to hire a company that can help in financial management of the firm. This takes away the other cost burdens of employing someone at the infant stage of the company.

 

In conclusion, I can say that the subject of Financial Management is a topic that need time and attention to avert wrong procedures and therefore requires expert advice.