From the Launchpad - Suraj Rajbahak

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From the Launchpad - Suraj Rajbahak

Suraj Rajbahak is the chief financial officer and company secretary at Shikhar Insurance Co. Ltd. Besides the role of company secretary, Rajbahak is also managing the administration department and internal control department of the company. In his role as a mentor at NEXT Launchpad, Rajbahak plans to help startups understand financing, and guide them on how to manage their finances.

This lightly paraphrased version of Rajbahak’s interview with VMAG’s Mohit Pradhan summarises Rajbahak’s insights on how financial management is vital for businesses, especially for startups.

 

Basic understanding of financial management

The department of financial management in any business is responsible for the management of funds and assets. Metaphorically speaking, the financial department is the heart of any business; much like how the heart collects and distributes blood, the department of financial management controls the flow of cash within the business, ensuring that money is given to the right department at the right time. Not only does the financial management handle matters within the business, but it also handles financial matters outside the business, such as the buying and selling of stocks, resources and property.

 

Responsibilities of the financial management department

Financial management is vital for every business. Making the slightest mistake can lead to grave consequences, so you need quite a lot of knowledge and skill to operate this department. For businesses lacking people with those skill sets, recruiting a skilled financial manager is the first thing to do. The financial management department is very significant in every firm, but they do not make the first decision or initiate any projects. The tasks and responsibilities of the financial department only begin with the creation of a business plan and project. After a business project is established, the department will begin making plans to ensure the projects get completed. If business plans project negative outcomes, even after attempts to find alternatives, the department can close those plans and work on more fruitful ventures. Apart from managing the costs and expenses of the projects, the financial department is also responsible for the growth of the business. Managing stocks, finding good-quality supplies at cheaper prices, making forecast on profits, accumulating funds from reliable sources and finding opportunities to develop are just some of the responsibilities of the financial management department. The financial management department is responsible for the survivability of a startup, and it works to ensure that the startup thrives.

The difficulties and risks of getting a loan

To operate daily functions and to progress according to business plans that have been set out for completion, startups require cash. The sources for accumulating money differ from organisation to organisation, yet the majority of these businesses use loans as a source for funds. For startups, getting a loan can be crucial; they have no revenue, and personal sources of funds are inadequate to run a business. Getting a loan could be a good way to start; however, getting loans can be very tricky.

Startups seeking to receive loans have the options of making a request to loan providers through formal channels or informal ones. The informal channels may provide finance faster with little questions asked, but the interest rates can be higher. This makes informal channels very risky, since the interest rates can get very high over time. Formal channels, which usually mean banks, require several documents that help the startup demonstrate their ability to pay for the loan. Usually, banks in Nepal check to see if the startup has collateral to back the loan. Most banks here will only be willing to fund startups if they can provide security for the loan they have taken. Unlike in other countries, most banks here will not extend loans to startups just on the basis of their business potential and past performance.

 

Risk mitigation and insurance

Besides funding projects, the financial management department seeks to reduce risk for the overall business. When a business enters a market or begins creating a product, the financial management department works together with the marketing and operation management departments. The financial department consults the other departments on what methods to follow to reduce expenses. Not only do they consult, they also conduct research to find areas where funds are wasted and take steps to remove them.  For risks that cannot be calculated, they try to find out if insurance is available. Taking insurance comes with expenses but also with several benefits that prepare startups for the unpredictable. The insurance a startup takes depends on the work they do. For example, product-providing businesses should take fire insurance or insurance to protect their machinery or products; services on the other hand, have products that are intangible, but the facilities from which they provide services can still require insurance.

 

Calculating the success rate

The financial management department’s work primarily comprises money management and calculating the success rate of projects. Predicting the completely accurate outcomes is impossible in the dynamic business world, but precision can be achieved with several financing tools. Collaboration between the marketing and the financial department allows startups to predict the outcomes of their investments. The marketing department identifies the variables, market demand, customers’ needs and other necessary aspects, while the financial department crunches numbers to make a practical forecast on profit, expenses, funds pulled back for growth, dividends and so on.

 

Theories versus practicality in financial management

There are many business students in Nepal who question the value of what they have learned: there are multiple theories and financial tools, but they often wonder if these tools and theories actually come in handy.  The answer is yes. Even though several of these tools and theories appear to be useless, they do come into use when the situation arises or if the organisation requires that it be used. Certain tools that seem inapplicable in startups may be vital for a company that has matured. However, the use of tools also depends on the financial manager as well. Financial tools may be useful in the right situation, but if the financial manager is incapable of adjusting to the business environment the startup is working in or lacks personal skills to apply what he/she has learned, then the theories will remain unused.

 
 
 
*First Published by the author in M&S VMAG

 

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Guest Tuesday, 22 August 2017