Startups have risen significantly over the past five years, particularly after COVID-19 era. This is due to the fact that building a startup is relatively simpler than a corporate company. Moreover, they also offer innovative, digital approach to business which make them prospective areas for investors. However, nearly 90% of startups fail within the first five years. The reason is because they lack the managerial aspect in managing legal and fincancial framework as the foundation of the company.
Definition of Legal and Financial Framework in Business Setting
Definition of Legal Framework
A legal framework includes the laws, policies, and regulations for the business to operate. Having a legal framework under the company’s legality is crucial for a startup to decide the proprietorship of the company. Hence, it will prevent the business not to fall under the wrong hand when dealing with crises.
Definition of Financial Framework
While the legal framework is for setting the regulation foundation of the startup, the financial framework serves as system for financial planning, reporting, and strategies. This is important to ensure the longevity of the company. Proper management of the cashflow is crucial for delegating where all the cash goes.
The Benefits of Legal Framework for Startups
Startup has the potential for impressive growth with its more flexible business process and expansion. Also, they are known for its creativity and innovation with the current technology. Moreover, they are also open for investors to invest their money and grow the company. However, things become complicated if it is followed by no legal framework. The benefits of using company legal framework in the beginning of founding a startup are stated below.
Here are the benefits of a legal framework for startups:
- Build Legal Foundation
The very first importance of having legal framework within a company is to protect the startup under legal foundation. Under the guidance of a notary and law firm, a startup can have all the legal documents needed to make their business legal as well. Hence, they are being protected against everything that disrupt their business process, including frauds, tax and the acceptance to follow the government’s law.
- Protect Intellectual Property
Another benefit of having legal framework use is protecting the intellectual property of the company. A startup can patent the copyrights, trademarks, intellectual properties, industrial designs, and trade secrets.
This is crucial especially since copy and modification has become popular among the rise of startups. An owner may also protect the data and documents of their company to prevent from data stealing and corruption.
- Build Investor’s Confidence
Having a legal framework will be a good kick start for a company to begin inviting investors. Investors are crucial parts in developing the growth of the company. Their investment is essential to fund the innovation, expansion, and the sustainability of the company.
However, in order to invest a huge amount of fund, investors definitely will be picky in choosing which startup is relevant to their business goal. By having a legal foundation, the startup at least has solid foundation that they are legal and valid. Moreover, long-term investment is more promising to get once investors are able to see the company’s integrity of keeping everything under regulation.
- Avoid Future Legal’s Risk
A businessman who is trying to build a startup should also think about the prospect of the company in the future. Any business practices can be risky and may be seen as violating against the country’s rule if it does not have legal framework. Legality awareness will help the company to avoid and anticipate any possibilities of legal risk and the security of the startup.
Thus, startup having a legal framework for its foundation definitely is a must followed by the good intention of building a trusted company.
Aside from legal framework, a startup should also consider having financial framework. Here is the benefits of having financial framework for startups.
The Benefits of Legal Framework for Startups
There are several benefits of having financial framework set within a startup. The pros of having one are stated below.
- Efficient Financial Planning
A startup is advised to have financial framework within the first year of its establishment. It will help to allocate budget and resources wisely. Most startups failed because they do not have careful financial planning and budgeting.
For example, a startup can divide liquid assets like fund from investors, savings, and capitals for managing the legal framework, recruitment, marketing, and retention. The last process is sometimes overlooked. Retaining current customers help to sustain the company’s cashflow when they are expecting a global disturbance.
- Transparent Financial Report
Investors are not up to companies that are not willing to openly report the progress of the company. A financial framework that regulates which data are mandatory to be shared for investors and which parts of financial report to be shown is important. Before inviting investors for startup, a company should establish financial framework for investors that provides adequate report.
Not only for investors, the general public is also a keen enthusiast of how a startup grow. A company build trust and brand by establishing healthy financial report and follow ups.
- Efficient Cash Flow Management
Cash flow management is the core of financial framework in startup. It is necessary to track the in-flows and out-flows of the capitals and the funds. Also, accurate daily report helps to monitor the validity of any transactions or financial activities in real time.
By doing so, a startup will be able to manage the cash flow efficiently. It is important to have a limit for the out-flows by considering the daily in-flows. System, digitalization, and proper human resource for it definitely will be huge support for the company. Therefore, the startup will continue stay afloat.
Conclusion
By seeing the use of legal and financial framework for startups, it can be preventive ways for innovative startups to not collapse and thrive for a long time. Some of the benefits like regulating law and legal as well as financial planning will put the company in solid foundation.