Start-ups on review path

Alarms go off if budgets are crossed; weekly & monthly reviews catching up

Many start-ups are setting up processes, including monthly and quarterly review systems, trying to better manage their affairs, growth and finances. Start-ups that Business Standard spoke to said keeping a timely account of their affairs help them to bring in a corporate culture early on and establish credibility with investors.

"We need to define our goals vis-a-vis the cash flow. Budgeting is one of the most important aspects in planning short-term and long-term goals. We do not only quarterly reports but weekly and monthly reports also," said Mitesh Shah, chief financial officer, Ola, the leading app-based taxi aggregator service.

For instance, if Ola's departments exceed their budgets, its management information system (MIS) sets off alarms, so that a course correction is brought in early, said Shah.

At Housing.com, a real estate portal which had been in the news for significant cash burn, focus has turned to monetisation and officials said it was imperative for the start-up to look at numbers. "We are keeping a regular tab and our cash burns have come down and unit economics have turned positive. But, we have a long way to go. We could post some healthy numbers in a few quarters," said an executive.

The start-up has also brought together its sales and marketing divisions. In August, of its five verticals - rent, buy, land, short stays and commercial - Housing decided to focus only on the rent and buy segments. Last month, the start-up, told Business Standard it had spent significantly on building and marketing not-so-important categories and, thus, decided to downsize those. It has also put in place a leadership team, sealing a few key appointments in the past couple of weeks.

Overall budgeting and cash flow forecasting, say start-ups, is as important as revenue forecasting. It helps companies understand how well they could use funds from capital raised, drawing up key performance indicators for various departments, identify profitability of business segments, assess viability of new initiatives and so forth. Thus, being able to quickly formulate a corrective plan in response to a change in business dynamics.

A Mumbai-based start-up in the education space is considering quarterly performance reviews, employee appraisals and benefits. "The quarterly exercise gives us an idea of where we stand on the targets met by each employee and our own performance. It also helps us keep our budgets in place," said its founder and chief executive.

The flip side of this drill is that start-ups need to put in considerable effort and allocate dedicated resources to such exercises. "Since we are still small, we find keeping quarterly accounts and appraisals very taxing. We will indulge in such an exercise after we have grown to a certain level, as large growth phases need such account keeping," said an official from a Mumbai-based start-up.

Bhairav Kothari, managing director, SuperCFO, a financial advisory service, says, "Even smaller firms now understand the importance of having a management information system." For, such systems help weed out non-performing clients and help focus on limited resources elsewhere.