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Fund management of a startup

Finance is one of the important aspect of every startup , 2 things that makes a startup run is innovative idea and integration of money timely. So it’s crucial to manage funds in every startup. One has to properly plan the timely requirements and a proper budget has to be layed out which will determine the sources and application of fund. Every startup requires fund and their are various sources to fund a startup. Some of them are like — government grants ,Crowd funding ,Investors funding ,Venture Capital etc depending upon the size , tenure , purpose of fund requirement. Basically it’s the role of a finance manager to gather funds and pump in properly into a startup .

How does a startup manages fund ?
Putting all your eggs in one basket is never a good Business Strategy,When you diversify your financing sources, you also have a better chance of getting the appropriate financing that meets your specific needs. Keep in mind that bankers don’t see themselves as your sole source of funds. And showing that you’ve sought or used various financing alternatives demonstrates to lenders that you’re a proactive entrepreneur.

Whether you opt for a bank loan, an angel investor, a government grant or a business incubator each of these sources has specific demands.

Here’s an overview of typical financing sources:

When borrowing, you invest some of your own money — either in the form of cash or collateral on your assets. This proves to your banker that you have a long-term commitment to your project.

This is money loaned by a spouse, parents, family or friends.

When borrowing love money, you should be aware that:

The first thing to keep in mind is that this funding source is not necessarily for all entrepreneurs. Right from the start, you should be aware that venture capitalists are looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications, and biotechnology.

Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party. Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.

BDC has a VC team that supports leading-edge companies strategically positioned in a promising market. Like most other venture capital companies, it gets involved in start-ups with high-growth potential, preferring to focus on major interventions when a company needs a large amount of financing to get established in its market.

Angels are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. They are often leaders in their own field who not only contribute their experience and network of contacts but also their technical and/or management knowledge. Angels tend to finance the early stages of the business with investments in the order of $25,000 to $100,000. Institutional venture capitalists prefer larger investments, in the order of $1,000,000.

In turn for risking their money, they reserve the right to supervise the company’s management practices. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency.

Angels tend to keep a low profile. To meet them, you have to contact specialized associations or search websites on angels. The Canadian Angel Investment Network can help put entrepreneurs in touch with angels. Angel Investors Canada is a not-for-profit organization that promotes best practices in this field.

Business incubators (or “accelerators”) generally focus on the high-tech sector by providing support for new businesses in various stages of development. However, there are also local economic development incubators, which are focused on areas such as job creation, revitalization and hosting and sharing services.

Commonly, incubators will invite future businesses and other fledgling companies to share their premises, as well as their administrative, logistical, and technical resources. For example, an incubator might share the use of its laboratories so that a new business can develop and test its products more cheaply before beginning production.

Generally, the incubation phase can last up to 2 years. Once the product is ready, the business usually leaves the incubator’s premises to enter its industrial production phase and is on its own.

Businesses that receive this kind of support often operate within state-of-the-art sectors such as biotechnology, information technology, multimedia, or industrial technology. Businesses that were supported by an incubator have a better success rate over 5 years.

The Canadian Association of Business Incubators has a comprehensive list of business incubators in Canada, plus links to other resources.

It’s not always easy to bring innovations to light so government agencies provide aid to Canadian companies. You may have access to this funding to help cover expenses, such as research and development, marketing, salaries, equipment and productivity improvement.

Technically, a grant is a sum of money conditionally given to your business that you don’t have to repay. However, you’re bound legally to use it under the terms of the grant, or otherwise you may be asked to repay it. As well, once you are granted money from one government source, it is not uncommon to receive further funding from the source if you meet program requirements.

Now once we get to know the sources of capital , we should learn how to manage it , Below are the checklist of managing funds :

Know What You Have

To begin with, you should be able to look to your finances and instantly pinpoint exactly how much money you have available. At the end of every month, you should perform a status update to discover how much money you have at that moment.

It may not necessarily be money that’s available to use, but you should know whether you are in the black or in the red. Update your spreadsheet at the end of every month so financial trouble never sneaks up on you.

Budget for Each Department

Next to knowing what you have you need to know how much each section of your company has available. How you allocate the budget for each department is up to you. Some companies prefer to pile their money into their marketing departments, whereas others prefer to spend the most on product development.

The point is you should immediately know where your money is going and what it’s being spent on. Every so often, review the performance of each department and consider whether you need to start allocating your money elsewhere.

What about Your Debt?

It’s true that bootstrapping startups are becoming trendier. On the other hand, most startups continue to take out loans in order to get them through the first few months of operation. Consider what loans you have taken out and the monthly payments you will be expected to make. You should know how much money you have both before and after making these payments.

Be Willing to Scale Up and Down

The art of managing your finances wisely is to be able to scale up and scale down according to your financial fortunes. For a start, you need to remember that sometimes you need extra money available in order to keep momentum rolling in the event that you manage to score a breakthrough.

At the same time, taking a step back and scaling down your operations can give you some breathing room in order to pivot when you need to.

Too many young entrepreneurs fall victim to either trying to spend everything they have or being overly conservative.

Create a Savings Fund

Startups need to be able to save for a rainy day. Unlike established companies, startups often find themselves unable to do this because they need to have all the money available right now. This leaves them vulnerable because if they experience a downturn in the market they are going to run into a situation where they have no reserves to work with.

How do you begin creating a savings fund as a startup company, though?

Rather than throwing everything back into the company, try to separate a small amount. Put it in a separate account. You should aim to save enough so you can operate using that money for between three and six months. Some companies decide to save as much as 25%, whereas others decide to save as little as 5% of their income. It all depends on your industry and your fortunes.

A savings fund is an example of good financial management because it will help you to get through the times where you have to run at a loss.

Stay Fluid

The most important tip of all is to stay fluid. Your financial policy needs to change according to the times. There are no rigid rules you have to stick to. If the market warrants you have to spend more, so be it. If the market warrants you have to save more, so be it.

Conclusion:Get Professional Help

Sometimes you may need professional help to get your finances in order. Search for an accountant firm that can help you implement the financial changes you need to become profitable. The help of a professional can ensure that you are setting yourself up for a bright future.

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