Thursday, May 1, 2008

Beginning Of A New Financial Year.


Start-Ups Need To Realise The Potential The Beginning Of A New Financial Year Brings And Gear Up To Tap It.

THE passing of March is the death of weariness and the birth of April the start of hope all over the world. Centuries ago, Geoffrey Chaucer opened his Canterbury Tales expressing his love for the sweet showers of April and the drought of March that pierce to the roots. For businesses, it is the end of the financial year, time to close old books and open new ones. It is when one squares off pending transactions, be they receipts or payments, evaluates performance, takes stock of inventory, realigns talent pools and makes strategic corrections. While big corporations have evolved time-tested models to take advantage of the changing of the fiscal baton, first-time entrepreneurs often tend to overlook the opportunity that March-April present to renew themselves.

Running a start-up from her basement in Bangalore, Rashmi, the 26-year-old founder of Rage Chocolatier, is one such entrepreneur. Her company, which is run by an eight-member team, is about to see its first year-end. She, like almost every entrepreneur that ET spoke to, was not fully prepared for the event. Fortunately for her, she had the mentorship of her father to guide her through her first year. “What we did was simple. All the bills we paid were put in one file and all the sales receipts were put in another. Now we are gathering them and running them through Tally, an accounting software. We have just got a CA to look into it, but I’ve realised that I need to hire a permanent CA to look into this all year round.” Keeping track of stocks and money is a full-time job by itself.

Keeping your tax record updated is important, not only to be taken seriously by potential business partners, but also to keep regulatory headaches away. The IIMA team that founded Ten-ADay has also just hired a CA. The Mumbai-based company is also set to see its first financial year draw to a close. The company produces preparation material for the Common Admission Test. The company is looking at collecting income and professional taxes from its employees as it hasn’t been done yet, says co-founder Vishal Prabhukhanolkar.

Calling in the CA only at the year-end seems to be a common practice. This is usually because of oversight. Apart from this, a start-up that’s strapped for cash is working on a lean team. The team is usually just meant to focus on the company’s offerings. But unless systems are put in place for corporate governance early on, things might just get unwieldy when the business grows to the mature phase.

Ideally, start-ups need to focus on governance from day one and not just at the year-end. This includes keeping the books in order. “A system of governance does not generate revenue and, therefore, people don’t focus on it. Putting everything on paper is essential as it will give you credibility. This is a year-long process,” says Bharati Jacob of Seedfund. She has invested in a couple of start-ups and says she noticed that at the nascent stages, the focus tends to be on here-and-now and not on long-term things like orderly books.

Not all first-time entrepreneurs are looking at last minute book-keeping. “On the accounting front, there isn’t much to do if you’ve kept your accounts in order since day one,” says Sriram Vaidyanathan. He and his partner run a coffee shop that seems to cater to the techie crowd in Bangalore. They are about to see their first year-end as well. For his coffee shop, BrewHaHa, he says this time of the year is good to review and refine their offerings.

Veteran entrepreneur and founder of Ferns ‘N’ Petals, Vikas Gutgutia, recalls the days he set sail with his venture 12 years ago. He says he neglected simple things like collecting bills during the venture’s initial years. This made book-keeping difficult. “When you start a business and success is coming your way, it is very easy to lose sight of keeping accounts. Two to three years down the line you begin to see that you need to pay as much attention to the accounts as the business itself.” Things have come a long way since this company started out with just Rs 5,000. Today, a consultant ensures transparency in its Rs 60-crore business.

National Entrepreneurship Network (NEN) executive director Laura Parkin says, “This time of the year is a really good time to pull out the weeds, as it is usually the time for year-end financials. It’s a good habit to have an end-of-year meeting to review performance. You can look at your key-performance indicators and resources based on this cycle.” NEN helps facilitate entrepreneurial-related programmes in over 200 education institutions across the country. Key performance indicators for the organisation are active members, activity levels and dropout feedback.

During the past three months Mohit Dubey, the founder of CarWale, looks at whether his company has met the milestones that he set 12 months ago. He then goes to his clients to check whether they have any left-over budget that could be utilised. This is his first yearend as well. With the Budget speech around the corner he has his ears peeled for auto-related recommendations from the finance minister.

Experts say March is the time that entrepreneurs must take a step back from their business and look at the overall form and structure of their organisation. The business must be a clean financial entity, getting payments on time, paying out its own liabilities on time and developing a system to do this throughout the year. Tax evasion may be appealing in the short-run, but can keep a company from growing into a major force over the long term. Spending a few extra bucks on organising the financials will pay over time, they say.

Next, it is also the time to reward top performers and weed out the bottom of the pile. Companies must evolve objective systems for performance appraisals so that when a two-person team becomes a 200-people company, the management does not lose sight of who is doing what and how well.

It is also a chance to work out new tactics. Tax rates may change, taking away one benefit but bringing in another. The government may announce schemes to support economic activity and a start-up must lie in waiting for business opportunity in them. This period is more like the periodic servicing that a car might undergo, when jerky parts are fine-tuned and essential systems topped up. The onward journey can be that much smoother.
Article Resource:
Author: Jacob Cherian is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

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