Basics of Finance for entrepreneurs

Finance is the holy grail for startup entrepreneurs. If you find it and manage it well, it can do wonders for your venture, but if you make few mistakes managing finance, it can break your back.

It’s important to understand the basics of finance as an entrepreneur, without trying to become an expert like CA. My effort at Nurture Talent Academy has always been to inspire and guide budding entrepreneurs to think about finance as comfortably as they think about software or marketing.

One shortcoming I have seen is realizing the revenue potential of their ventures. There are various ways to earn revenues, and a successful company depends on multiple streams to generate their income:

1. Product sales – selling your own products, selling products of someone else from your website or offline channels

2. Consulting service – serving other customers by giving them solutions to their problems, diagnosing issues and enabling implementation of solutions

3. Merchandising – just think of Disney and you will understand the power of Merchandising – usually referred as creating a brand and selling products using the imagery of the brand

4. Writing blogs, books etc. – you can use your skills and experiences to write books, and blogs that your users/consumers can follow

5. Subscription – Users can subscribe to your services and pay regular membership fees example health clubs etc.

6. Royalty – In addition to selling your products, you can ask for royalty fees as a % of sales every year, for example, Videocon pays royalty fees to Sansui to sell their products and use of brand name

7. Lead generation – using your customer base, you can connect them with the service providers and charge a lead generation fees – check out www.ixigo.com, which is free for the users, but charge the airlines when tickets are booked by users.

8. Sales commission – as an entrepreneur, you can represent other manufacturers to sell their products and charge a sales commission to the company.

9. Annual maintenance charges – most of the hardware suppliers charge AMCs for continued support and upgradation.

10. Licensing – most of the software suppliers charge license fees from their customers for allowing usage of their products for a pre-defined duration, for example, Microsoft sells license for Windows OS.

While each of the revenue sources has some potential, its important to prioritize and accordingly devote resources, as no revenue happens without cost attached. Other benefit of revenue focus is that you are clear of seasonal hurdles; for example, in Diwali season, you can sell more TVs, but when summer comes AC sales increase; rest of the year can be focused for service and maintenance contracts.

Its not easy to handle multiple revenue streams, but its also not tough; at the end of the day, survival matters for a startup!

Also, from an investor or VC point of view, its acceptable as long as focus is on 1-2 type of consumers and product lines and business is happening in related areas.

So go ahead, and keep innovating continuously and entrepreneurial success will be yours.

About the AuthorAmit Grover is an IIT Delhi and IIM Indore alumnus, an individual with a passion for entrepreneurship. He is the founder of Nurture Talent Academy (www.nurturetalent.com), which has conducted 35 programs, across 10 cities, attended by 550 startups. It conducts programs for budding entrepreneurs on areas like finance, business plan, marketing and setting up a company. He is also a member of Mumbai Angels, a group of early stage investors and has led over 25 deals in last 4 years.