'Entrepreneurship Series' by Prof Ashok Jhunjhunwala (IIT-Madras, India)

Profit & Loss and Balance Sheet While cash-flow management is a priority for startups and mature companies, an important question one needs to ask is how much money a company will generate from each unit of product or service that it sells (or plans to sell) .  A good understanding of this will help the entrepreneur arrive at the number of products / service offerings to be sold, for the company to break-even and become profitable.   We will start this blog by understanding  Product / Service Margin . This will play an important role when we take up  Profit and Loss (P&L) computation later. Though a startup may have some distance to go before actually selling products/services, these estimates should be computed even during the product development stage.  Let us term this  Product margin estimation .  When the product/service is being sold, this straightaway gets plugged into the P&L. The margins multiplied by the number of units sold and delivered will

Order ,   Delivery   and   Cash-Inflow   for a product or service are three related but different events impacting the finances of a company. They have a time lag with respect to each other; also, while in most cases they follow each other, at times, there may be risks associated with these. The impact of time lags as well as risks associated with the company’s finances must be understood by an entrepreneur.  When a company gets an  ORDER  for its product/service, it is time to celebrate. But the  order-in-hand  is only the beginning of a journey. This does not get reflected in any of the financial statements of the company. The order-in-hand and order-in-pipeline (likely to materialise) are nevertheless extremely important and presented to the board as such.  The minute the company gets an order, it has to plan DELIVERY against the order. Expenditure for fulfilment of delivery against the order would start immediately (sometimes even before the order is received). The financia

The most important Mantra for a Startup Many entrepreneurs  in India come from a technical background, but lack experience in managing an organisation, specially its cash-flow.  Normally enthralled with their exciting ' ideas ',  e ntrepreneurs are certain that these will make their company great. They believe that their ideas are so strong that investors will always put in money as and when required. They often do not appreciate the value of money or the risk investors taken by the investors. Many founders do not know how to make the best use of the invested funds and feel no obligation in managing the invested money well. Often, they have a negative view that the investors are only interested in returns and their marvellous idea is worth the investment. Founders seldom work to maximise the probability for investors to get a decent return in the long run. Moreover, they rarely know how to manage cash-in-hand and maintain a cash-flow, so that the company can be pr

Taking inspiration from hundreds of startups incubated at IIT Madras & elsewhere over the years Today, Incubation of startups, driving innovative technologies, is flourishing at numerous educational institutions in India. When we started some 25 years back, the institutions had a dilemma. We were often told that educational institutions are meant to pursue only Saraswati , the Goddess of Vidya (knowledge). Businesses are all about the pursuit of Lakshmi , the Goddess of Wealth. As per Indian tradition, mixing Saraswati and Lakshmi is not done. It would negatively impact the educational institutions. Therefore, our early incubation of startups were carried out quietly and largely without formal approvals. However, these startups showed that knowledge generated in educational institutions could indeed be commercialised for the benefit of society. It took considerable time, but the Saraswati – Lakshmi dilemma faded gradually. By the turn of the century, there wer