Finance Operational Challenges for Indian Tech Start-ups

In the fast-paced world of tech start-ups in India, finance operational challenges can often become a roadblock to success.

As these innovative companies strive to disrupt industries and scale their operations, they are faced with unique finance operational challenges that require strategic solutions.

Operations are the backbone of any company, but for a start-up, they can make the difference between success and failure.

When operations have clearly defined guidelines, policies, and regulations in place there is minimum friction or conflict, and a smooth day-to-day environment is ensured.

On the contrary, when things are not documented, there is inconsistency and chaos which can lead to a poor experience for your customers and an uncomfortable environment for your team.

I do not portray myself as an expert at running a technology company that has no issues whatsoever, but I would like to share a few common problems that I faced and the approaches that turned things around for us.

For this post, I am going to follow a simple approach – I will be talking about supporting functions of operations and speak about the finance operational challenges of an Indian technology start-up, common mistakes that can be made, and how to overcome them.

Supporting Functions of Operations

Challenges

Revenue is one of the most important aspects of running a business.

The future of a company is at stake if there is no clarity between income and expenditure.

Sales, purchases, and Expenses are the backbone of a company’s functioning, and managing this is a difficult endeavor. Finance operational challenges often arise in managing revenue, expenses, and the overall financial health of the business.

Sales Management
Purchase Management
Expenses Management
Tax Management

Common Mistakes

The most common mistake that new businesses tend to make is to do manual invoicing using either MS Excel or Word.

The usual attitude in individuals and early-stage entrepreneurs is– why should any money be spent on things that can be managed for free?

Believe me, it is one of the most excruciating things to manage.

By invoicing in spreadsheets, you end up creating multiple sheets– keeping track of the current invoice number becomes a pain, have another worksheet for expenses, and then when you finally want a consolidated view of your bottom line, you cannot do that because everything is scattered.

Overcoming the Challenges

For managing your purchases and sales, the best thing to do is to use a cloud-based solution that is being offered by many companies.

These not only give you online access but also have dedicated mobile apps to manage your billing while on the move.

You just upload your logo, address, and other details and start invoicing. That’s it.

This approach helps overcome finance operational challenges, including the hassle of print layout, font-size, sub-total, and tax calculations.

One of the most useful features of these systems, my favorite, is automatic email to customers post invoice creation.

It gives a very professional touch to your company’s internal processes and also eases the task of separately emailing your customer the invoice.

Cloud-based solutions also regularly update their systems to comply with Indian laws and this ensures that your invoicing is compliant with any new changes recommended by the government.

The other advantage of such systems is that they are providing this as a SAAS (Software as a service) model to multiple organisations, therefore they are cost-effective.

If you’re not looking for complete accounting software, Zoho Invoice (now Free) is an excellent choice for invoicing only.

Accounts and Tax Management

Challenges

For a technology company like us, managing our finances is not a billable function. It is supportive.

Hence time spent in Finance management is an expense that should be minimized.

Tax management, GST filing, company accounts are managed by our external chartered accountants which save us a lot of time.

However, one of the main finance operational challenges while working with them is that they require timely information about sales, purchases, expenses, payroll, employee investments, and more.

Common Mistakes

When I was in college in the late 2000s, there were many desktop-based solutions that provided invoicing facilities and expense management.

In fact, one of my early projects was an invoicing system built for my friend’s dad’s business.

These solutions were sufficient earlier, but given the current era of GST and COVID, it is difficult to manage with the offline system. It is usually installed on only 1 system with no access to it outside your workplace.

From the beginning, we were very clear that our company’s accounting would be managed by a third party C.A firm.

Finance operational challenges arise when your sales, purchase, and expenses information is not kept up to date and in order, causing delays in processing GST, TDS, and income tax.

It is very important that the CA firm you hire should be available to answer your questions 24×7.

When you run a business, there are many areas which you need to deal with viz. GST, SEZ invoicing, TDS, Payroll, and more.

Sometimes, the C.A firms are so busy that they do not have the time to handle your queries and you end up taking help from outside.

This is not an efficient way of managing, as the C.A should be the one who answers your questions and provides you with the best solution as they are the ones who know your business in and out.

Overcoming the Challenges

To zero in on your C.A, I would suggest you greatly push for a firm that is available near you or at least within your city limits.

Do not opt for an online C.A service.

Personal interaction with your C.A is crucial to stay up to date with information regarding taxation laws, planning for investments that can give you tax savings, annual filings, expenses management, company growth, and a whole lot of other things.

You should meet with your CA at least once a quarter to evaluate your position.

The other important aspect that should be taken into account is the technology savvy-ness of your accounting firm.

Many C.A. Firms are very rigid about their style of working and demand that data be provided to them in a fixed format.

This may be a challenge when you are using a cloud-based system or other systems.

The firm should be able to adapt to your mechanism of working and integrate itself within your company’s working environment.

Payroll

Challenges

There must be a definite payday every month.

For example, let’s say you decide to pay on the 5th of every month, it is of utmost importance that you release salaries on or before this date.

This is a must, to maintain the company’s reputation and trust within employees.

Hence, finance operational challenges include effective payroll processing, ensuring that it is well managed to uphold the company’s reputation and trustworthiness among employees.

Common Mistakes

In your company, if there are fewer than 5 employees, then payroll can be managed manually.

I personally do not recommend such an approach, but since payroll systems come at a price, it becomes a viable option to use such systems only when there are more employees in your organization.

Earlier we would manage payroll manually through carefully crafted Excel sheets created for every employee.

But as our company grew to more than 5 employees, managing payroll became challenging. Managing earned leaves, and calculating salary post-deducting leaves became a tedious task.

Overcoming the Challenges

The best thing to do is opt for a payroll processing system that will handle things for you.

The real value of the system will be returned when your employees grow in number.

Your system should have multi-user access so that your HR handles the curation and processing and management gets approval for the same.

Also, I would like to point out that if you purchase multiple systems to manage small tasks, integrating them could again be a concern.

I would like to suggest that you pick a provider that has a suite of different services so that integration between systems is easily done.

For example, Zoho provides an entire suite of applications from Books, Payroll, employee attendance, and tracking called Zoho People.

The main advantage of such a suite is that your employees fill out their daily timesheet and attendance on Zoho people and this directly gets pulled into Zoho payroll for salary calculation finally all salaries get automatically added as expenses in Zoho books.

This becomes a seamless process and will greatly reduce your time for payroll processing.
In the next article, we will be talking about the finance operational challenges of an Indian technology start-up faced by the Human Resources department.