Five reasons why startups need a financial/operational plan

Startup Startups are not just about the next big idea. Startups also need an excellent team and precise planning to get to the first step to success–raising finances. To achieve this, experts say that companies need a financial and an operational plan as soon as possible.

“A financial or an operational plan serves as a navigational map for startups. It helps them remain buoyed up in a maze of uncertainty and ensures that it will be pulled down by its own hubris,” said Sakthivel Manivannan, the chief operating officer of Opus Soft, a Bangalore-based software consulting startup.

Why do startups need a financial or an operational plan?

1. Burn rate vs growth

A startup with a financial plan in place can calculate the extent of burn and correlate with the opportunities of growth that it offers. Be it the increase in the number of active users (or clients) or gross merchandise value or total number of users or total value of goods sold, all these metrics are financially determined in numbers. An investor who is scrutinizing the company should be able to see where the company is placed financially and what potential it holds to become a successful organization in the future.

2. Many rounds of finance 

A financial plan will also allow a startup to determine the number of rounds of finance that it will require. It will set targets for fund raising and chart out a growth path. It will also clarify the issuance of fresh shares and share capital expansion of a company which will ease more investors to come into the company.

3. Assessing risk

Even early bird investors are weary of risk. If they are not weary and willing to take risks, they would want to know how much they are risking by investing in a startup. A startup should invest enough resources into assessing the risks that it is taking including IPR risk, market risk, technology risk and operational risk. A startup with an operational plan that clearly defines risk and is taking enough measures to minimize it has the potential to become a large organization in the future.

4. Revenues vs profits vs cash 

The success of a startup does not lie entirely in the funds that it is able to raise. It is also about the funds that is earning through its business. The ability of a startup to remain liquid and ably pay off its investors is the one that can manage its working capital cycles by forging deals with suppliers and service providers. An operationally strong startup has a robust plan and team to ensure that it is earning as much as it is investing in its own future.

5. Strategy & competition

Most startups have aggressive expansion plans by entering new markets. However, they should be supported by a dedicated team in place to ensure that this process runs smoothly. It should also measure the extent and strength of competition to make sure that a company takes the best foot forward.

An operational plan will ensure that these growth measures are successfully implemented as per targets. The targets can also be reviewed constantly to measure the growth that a startup is experiencing. It can also hone the strategy and business model of a company and ensure that it becomes valuable to the investor and itself.

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Source – Kotak Business Boosters

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