India has recently drawn the attention of the global business community due to its cutting-edge companies and vibrant entrepreneurial culture. The nation now has 100 unicorns, which are often privately held companies with ground-breaking ideas and cutting-edge solutions with capital of over $1 billion. Startups may have a substantial sum of money on hand through successive fundraising rounds. As a result, monitoring the burn rate becomes crucial. Treasury Management is therefore involved.
Effective Cash Management: For the efficient use of capital and funds in the face of significant cash inflows and a cutthroat business environment, cash management is essential. Startups don’t actually have a formal treasury department, though. Effective cash management necessitates a strong treasury department due to unicorns’ brisk growth operations. However, in practice, just one or two persons are responsible for estimating cash requirements, handling bank payments, ensuring return on deposits, and otherwise completing the requirements of treasury management, which include risk management and capital preservation.
Investment Dilemma: The importance of investing grows when there is a large amount of capital available and significant expansion in the periphery. When you start investing, your goal will be to get the best interest rates and profits, but there is a risk involved. Risk and return are indissolubly correlated; as return increases, so does risk. As unicorns, you should hunt for a yield while minimizing your risk. Considering risks when making investments is increasingly more important now that VC-backed finance, angel investors, and other sources of funding are available.
Accessibility: Access to your money is crucial for a developing business because, in the end, you’re building a company, not seeking to profit from investments. Treasury management steps in to save the unicorns in this situation. You can use it to manage your money and find the right mix between returns, risk, and accessibility. By using a cash management system, you can keep your money secure and concentrate on expanding your company.
Platform: Early-stage firms’ financial dealings can occasionally be complicated. There are a lot of channels to take into account at once, such as crowdsourcing, seed fundraising, series funding, angel investors, and venture capitalists. Managing these digital payments may appear difficult given that we are quickly moving towards a digital generation. It becomes considerably more difficult when additional considerations like supply chain finance are included in the equation. As a result, having a solid platform to handle this situation also becomes crucial.
Corporate Governance: In a startup’s early years, corporate governance is frequently disregarded, yet this behaviour can be harmful to the long-term viability of the business. There are many board members affiliated with particular funding routes, especially for unicorns with significant fund inflows. The decision-making process lengthens and gets more difficult over time. For companies that are naturally unstructured, the quantity of policies and regulatory compliances that go along with that growth is frequently a difficult issue. They can pre-configure the rules and procedures for hassle-free compliance and governance tasks with the correct treasury management system. Without having to worry about rules, investing and other associated financial activities become stress-free and straightforward.
The Bottom Line
Over 44% of corporates are now adopting Big Data, Artificial Intelligence, or other intelligence-based transitions within their treasury in an effort to improve their cash management, according to a CitiBank survey. This illustrates the appropriateness of utilising a treasury management system in a developing company with a long way to go. All large organisations, including those that may be your direct or indirect competitors, have the treasury at their disposal and are entitled to use it. The epidemic has shown how vital cash and liquidity management is in an environment of market disruption and extreme volatility. Having a treasury not only enables businesses to steer the ship in the proper direction in unexpected situations, but it also provides insights to match business objectives in terms of investment choices and cash requirements. Finally, all startups seek governance, scalability, agility, and accelerated business growth. Treasury management software is a comprehensive solution that addresses all of a startup’s goals, making it a long-term strategic move.
Article Published in: ET BFSI
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