As a startup founder, one would be in a pretty unique position. If all goes well, at some point, one would have an opportunity to handle a lot of money. This can be the money they have raised or made via sales. As Kavan Choksi says, unless one has adequate experience and expertise in managing wealth effectively, startup founders may end up putting their business at risk. Wealth management is the key to long term business success.
Kavan Choksi provides valuable insights to startup founders on wealth management
How startup founders manage their wealth is important for growing their business, hiring employees, staying compliant, and so on. As the wealth of a startup founder grows along with the success of their startup, everything from estate planning to asset management becomes vital. Here are certain tried-and-tested wealth management tips that startup founders must follow:
- Maintain runway at any stage: In the startup lingo, runway implies to the length of time one can stay in business with the money they have in the bank. It is determined by dividing the amount of money one has by how fast one can spend it each month. The term runway is widely used for startups that are not generating enough of a profit to stay solvent without outside funding. It is important to understand how these numbers would impact the ability of a startup to grow and/or ride out tough times.
- Bill partners consistently: Apart from having an adequate amount of cash set aside, having funds coming into a business on a regular basis is important. Broadly speaking, startup founders must have billing terms and stick to them no matter the partner. Otherwise, they would risk running low on cash and waste a lot of precious time going back and forth to collect payments.
- Cash flow is the king: Cash flows into a business when a person makes a sale to the customers or fulfills an order for a partner. On the other hand, cash flows out when a person makes payments for various business expenses, like loans, rent, taxes, and so on. Equity commendation is among the most common ways through which startup founders can improve their cash flow. This basically implies to providing employees a partial stake in the company in lieu of a higher salary.
- Monitor and review business valuation: Startup founders must keep a close eye on the valuation of their business, as well as its potential impact on their personal wealth. Assessing the market value of a business regularly and seeking professional advice when it comes to equity dilution, fundraising, or exit strategies is quite important for startup founders. Gaining a good understanding of the financial health and value of their business will help startup founders to make informed decisions about equity allocation, financing, as well as potential liquidity events.
As per Kavan Choksi, patience and a long-term perspective are needed to build wealth as a startup founder. They must focus on value creation and sustainable growth instead of short-term gains. It is prudent to avoid making impulsive financial decisions and stay committed to the overall wealth-building strategy.