Entrepreneurship is driven by innovation, art, creativity and ability to solve real world problems and out of thinking, many entrepreneur comes from non-finance background such as engineering, technology, art, social sciences. They come up with fine product or services, but fails because lack of understanding finance, as we all aware that finance is heart of every business. Finance plays key role in sustaining business for longer period of time and growing existing business and because this non-finance background entrepreneur cannot ignore basics of finance because finance is essential to make informed decisions and ensure long term success in business
Not every time non-finance background entrepreneur fails but lack of financial knowledge increase the risk of failure. Success of business somehow depends upon how effectively utilise financial resources. Lack of financial knowledge leads to cash flow mismanagement, lack of working capital, higher cost, lack of profitability in business and ineffective use of funds these are the main reasons of start-up failure’s in India
Finance is the backbone of every business. Even a promising business idea can fail if financial resources are not managed effectively. Entrepreneurs must deal with budgeting, cash flow management, cost control, pricing decisions, investment planning. Without understanding basics of finance it becomes difficult to track business performance and plan for future growth. Most of start-up’s fails not because the product or service is weak, but because financial management of entrepreneur is poor. Entrepreneurs who lack financial knowledge may face difficulties in managing financial resources, expenses, maintaining working capital and have good profit in business.
Key Financial terminologies Every Entrepreneur Should Understand
I. Cash Flow Management
Cash flow is movement of money into and out of a business organization. Revenues from sales and expenses such as salaries, rent, and inventory costs are part of cash flows that is into and out of a business respectively. While managing a cash it is important for businesses to manage required working capital, even profitable businesses can fail if they run out of working capital to meet daily expenses. Therefore, monitoring cash flow is critical for business survival.
II. Cost Sheet
Cost sheet is statement that includes all the type of cost requires to produce product or service such as raw materials, labour and other overheads. Cost sheet helps entrepreneurs to determine the total cost, selling price, and overall profit of their business. Cost sheet helpful for cost control, help to choose pricing policy.
III. Budgeting
Budget is plan document that gives idea of income and expenses in upcoming year so that accurate estimation of income and expense helps entrepreneurs to manage resources effectively, they can prepare for future investments, to manage expenses and budget help businesses remain financially disciplined
IV. Revenue and Profit
Entrepreneurs must aware of basic difference between revenue and profit, Revenue represents total income generated by business, higher revenue never means a good profit, Profit is the amount remaining after deduction of expenses, if expenses are higher that always adversely affect the profit. Higher revenue can contribute in market share but not guarantee maximum profit so entrepreneur must be aware of Profit Maximum Model theory and Sales Maximum Model theory
V. Break-Even Analysis
Break even analysis helps the Entrepreneur’s to know the quantity of sale where they can achieved no profit, no loss situation in business, before thinking about profit in start-ups, first they need to achieved break-even point and after that entrepreneurs start earning profit.
VI. Financial Statements
Annual financial statement which measure financial position or financial health of business through balance sheet that gives us information of total asset and total liabilities. Income statement shows business organization running business in profit or loss over a period and the cash flow statement tracks cash inflows and outflows, Understanding the preparation and reading of financial statement that information helps entrepreneurs to take better decisions
Using Technology and Professional Support
Modern technology has simplified financial management for entrepreneurs. Accounting software’s such as tally, QuickBooks, Zoho Books, Wave accounting, FreshBooks can helps entrepreneurs to manages finances in easyway with less human intervention and Digital Payment Platforms, Budgeting and Financial Planning Tools, Invoicing and Billing Tools, Financial Analytics and Dashboard Tools, these tools helps to track expenditures and revenues generate reports, and manage taxes efficiently. In addition, entrepreneurs can seek assistance from accountants, financial advisors, or consultants to manage complex financial matters. Learning basic financial terminologies, concepts using professional guidance improve financial knowledge that leads to better financial decision-making.
Tips for Non-Finance Entrepreneurs
Entrepreneurs with non-finance background can strengthen their businesses by following a few practical steps:
- Understand basics of accounting and financial terminologies.
- Maintain accurate financial records (Debit and Credit entries)
- Separately manage personal and business finances
- Monitor cash flow on regularly basis.
- Use software of financial management for accuracy.
- Take advice from financial experts whenever necessary
To understand basics of finance does not require becoming a finance expert, but it does require understanding the fundamentals that influence business performance.
Conclusion
A non-finance background does not prevent entrepreneurs from building successful start-ups. However, the basics of finance are much needed and that supports sustainability, profitability, and growth in their start-ups. Entrepreneurs who understand basic of finances can make better strategic financial decisions, manage risks, increase profitability and reduce losses effectively, and by showing their understanding of finances, they can attract more investors.
Prof. Shriram Ugale
Assistant Professor