Entrepreneurs, finance and understanding the 'F' of 'E'

Crowdfunding, seed capital funding, angel investment and venture capital investment have found preference over traditional bank loans or borrowing money from relatives.

Entrepreneurs are risk-takers and niche-finders. They see and seize opportunities and implement new ideas, new processes and new technology. They are not afraid to venture out, make mistakes and take responsibilities for those mistakes. They do not see failure as the end but as a learning experience on which to build businesses and future success. That being said, starting a new business can be a daunting task. There are myriad issues a new entrepreneur will encounter: legal issues, financing, marketing, product development, human resources, etc; the list goes on. Many new entrepreneurs are simply overwhelmed by all the things they are expected to know.
Having been involved in a couple of startups as an entrepreneur I have learned a number of real-world lessons. There are a few lessons that left behind a trailing mark and will stay in mind forever. One of the most important ones is finance. I fondly mention it as the 'F' of 'E'.
Any idea that turns into reality will need money. The money or the finance can be personal or borrowed. If you are new to the tribe, if you aim to create and run a startup, then you must know 3 simple things about finance:
1. What is your source of finance (raising funds is difficult)
2. How much do you have or you can source (you should know your finances)
3. How to manage it over a period of time (how to stretch your dollar bill)
Raising finance is difficult but not impossible
Entrepreneurs or a startup aspirant must have some capital to start with, whether it is your own savings or borrowed from someone who trusts you. But you must have something in hand to start with.
Raising financing for your startup will likely be more difficult and more time-consuming than you imagine. It takes a great deal of effort to convince angel investors or venture capitalists to invest in your company. So you need to anticipate the time delays involved. And a startup needs just "a start". Long waits can be frustrating for anyone with a fire to start a startup.
In case your business idea is based on raising funds then you have some beautiful and rewarding options these days. Crowdfunding, seed capital funding, angel investment and venture capital investment have found preference over traditional bank loan or borrowing money from relatives.
To kick-start a business, there are many websites that help you raise money for a viable and workable idea. Raising money through these websites is commonly known as crowdfunding, which in itself is a fully-fledged short-term business plan and a fantastic business experience. If you succeed in sourcing online funding from any of these websites, you would already know what it takes to run a business.
That being said, one should kindly note that time is of the essence. Any fund-raising activity should not take more than three months of your time. Hence, a fund-raising idea and pitch should be simple and swift. Complicated processes are counterproductive and will slow down your fund-raising. And many investors will refuse a complex idea or process as they themselves are not equipped to handle complexities of business. That's why you are an entrepreneur and they are investors. It's hard enough to get a meeting with an investor, or an opportunity to kick-start so avoid putting another hurdle in your way.
Know and manage your finances
Once you decide whether or not to raise funds for your startup, you must clearly know what you have and when you can have your money in your hands to spend. The next step would be to spend these funds for business.
You must keep on top of your expenses and learn how to thoroughly understand financial statements and budgeting. Many startups have failed because the entrepreneur wasn't able to adjust spending to avoid running out of cash. Establishing a detailed, month-by-month budget is important, and this budget must be regularly reviewed. Understanding your financial statements will also help you answer questions from prospective investors.
Some financial statement questions you can expect yourself to know: what are the company's three-year projections? What are the key assumptions underlying your projections? How much equity and debt has the company raised? What future financing will you need? When will the company get to profitability? How much you have to invest until the company gets to profitability? What are your unit economics? What are the factors that limit faster growth? What are necessary and unnecessary expenses?
At the early stages of your startup, you will likely want to have a small employee team to minimise expenses. A good way to fill in for specialised expertise is to use freelancers or consultants. That way, you avoid taking on employee costs and benefits payments. And there are a variety of sites that can help you access freelancers.
The writer is an entrepreneur and financial planning consultant. Views expressed are her own and do not reflect the newspaper's policy.