In India, startups are typically in survival mode, calculating their survival to their next capital raise in-months, in the so-called runway calculation that provides a rough idea of survival time before the lights must turn off. However, this figure is widely a false illusion. Founders go into meetings with investors believing they had 12 months of runway only to find themselves with a cash shortage in six months.

It is not only a mistake in finances, but also a mental trap. And though most founders tend to work based on estimates and gut feel, an experienced CA for startups may end up showing how flimsy those assumptions can be.

Why Runway Math Does Not Often Equals Reality

On the surface, it is easy to compute runway, which is available cash divided by your average monthly costs. That is, of course, given that you have ready access to cash; that there are no surprises to the cost side of the business; and that nothing unpredictable happens to the business in India, which happens to be untrue, most of the time.

A typical area of blindness is how founders treat once off costs. It is a fact that they are not usually one-time. Attorney fees, incorporation fees, compliance consulting services – these are some of those which re-occur or grow with business. Other lurking danger is deferred liabilities. These obligations can be anything between GST and TDS dues to delayed payments to vendors and will not be reflected in your current burn but will have to be paid later which, in most cases, means immediately.

The assumptions in revenues also skew the situation. An invoice is not necessarily a cash item. Most entrepreneurs include estimated sales into their cushion, without realizing that even a delay or lost client may eliminate the cushion overnight. Then there are all the hidden day to day costs, the little software subscriptions, the marketing retainers, or the gotchas that always seem to be hidden in there that never get in the official burn estimate but nibble away at the cash nonetheless.

The effect is the perilously false feeling of safety. Key decisions like hiring, advertising outflow, product releases, are being taken on wrong figures. The founders spend time trying to improve their metrics before they raise money, not realizing that the runway has been cut by unseen background fires.

The Importance of a CA for Startups beyond Bookkeeper

The majority of founders see financial specialists as backward-looking individuals, i.e., those who sum up the costs incurred and submit reports. A keen CA to start-ups, however, has much to offer. They’re forward-facing. They simulate the risks, stress the assumptions and construct the financial scenarios which founders tend to ignore.

A CA with the startup landscape knowledge does more than crunching numbers. They are posing difficult questions. How does it affect you when your biggest customer does not pay you within sixty days? What would become of the hiring that has been scheduled in two months time? Imagine the following GST payment coincides with your departmental increase in salary?

Founders base their decisions better with answers to such questions. They understand when to save cash, advance growth, and raise capital, not on ruled judgment but on modeled results and organized projections.

A Grass-Roots Jolt

Let us consider a case of a Bangalore-based SaaS startup. Theoretically, they had 1.2 crore in the bank and were expected to burn through 10 lakh a month, which made good clean twelve months of runway. However, they had failed to consider eight lakh worth of unpaid taxes, four lakh in vendor payments, and an upcoming increment in payroll. Their runway was near to six months.

It was too late to realize. They already rented a new office and increased staffing. The only solution left in order to keep afloat involved emergency bridge funding. The founder points out that an adequate review by an expert CA in start-ups would have pushed their decisions back by months and robbed them of the panic.

Final Thoughts

False confidence in financial control is a widely spread and the most expensive mistake made by Indian founders. It is not the matter of money mismanagement. It is about believing imperfect statistics and making bad assessments about the pace at which things move in the start-up world.

Clarity is the key to survival whether you are working on a newborn idea or growing rapidly. And clarity begins by an understanding that you know your burn rate is not make believe. One of your best underrated growth partners is a reliable CA for startups not because they run towards tax filing drills, but because they ensure that your numbers do not lie when it matters the most.