Why a startup should choose a CA (Chartered Accountant) as co-founder
The motto of the Institute of chartered accountants of India (ICAI) is Ya Aeshu Suptaeshu Jagruti which literally means "a person who is awake in those that sleep" On 1st July 2017 on the occasion of CA Day Prime Minister Narendra Modi has said “Chartered accountants have a crucial role to play in India’s progress”.
Based on the latest statistics made available by the Institute of Chartered accountants of India (ICAI) as on Apr 1, 2016 India had over 253,369 CA members for a country with over a Billion population and with 10.76 lakh active registered companies, the demand for CA's is still quite high.
With pass percentage between 3.48% to 12.32% based on the latest exam results from ICAI, The Chartered accountancy exam is regarded as one of the toughest professional exams of our times, just about over a lakh, is the number of students that appear for these exams held every six months. The lucky few who get through these exams learn some very valuable lessons during their student and professional life which to my mind are the qualities needed in a Co- founder of any startup.
Let’s analyze some of these qualities:
1. Survival with bare minimum
The institute of Chartered accountants of India (ICAI) has prescribed a very basic stipend amount which ranges from Rs. 1,000 to Rs. 3,000 per month depending on the city/town and the year of Articleship (i.e. 1-3 years) Some students are lucky to get more than this basic amount if they are working in bigger firms but still it ranges between Rs. 5,000 to Rs 20,000 per month for a selected few. Now a student who undergoes this training period is basically self-taught to survive with this bare minimum amount that is paid to them at the end of the month. The positive impact of such a scenario prepares a CA student to learn to save and utilize the monthly pool very efficiently. A CA Co-founder will always find ways to efficiently utilize the funds raised and with VC and PE funds cautious of extravagant spends or excess funding this quality becomes rather critical to any startup.
2. Focus on Effective Budgets
Having worked in accounting and auditing industry a CA’s core strength is his ability to prepare and present an effective and balanced budget and forecast any unplanned expenses which many startups fail to foresee and hence having a CA on board provides an extra support to ensure that funds don’t dry up quickly based on inaccurate forecasts and budgets.
3. Business Planning
During startup presentations, the investors notice that the startup has found a perfect idea and have thought through the pros and cons and technically aced the presentation, but startups often fail to project a proper business plan emphasising on running the idea as a profitable business venture. Most of the startup ideas are brilliant and provide 100% solution to many problems, but each of these ideas need a business plan which can showcase that it is worthy of an investment at scale A with X returns and at Scale B with Y returns. Most decks that get refused are not because of the idea but because they lack the correct business planning. A CA co-founder can ensure that the deck contains the necessary slides which could show them the business planning and the Money in the idea.
As CEO and Co-founder of Stayzilla which shut shop recently explained “The initial 7 years were all about having negative working capital, positive cash flow and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3–4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital”
IPO or a buyout is the most common exit strategy being presented to the funding organizations, but to an investor’s mind they are unpredictable and hence need to be evaluated differently. The Investors want to see that founders are and remain committed to the idea and are ready to scale up to provide higher ROI’s rather than be told that the startup can get acquired by other big organizations. CAs are academically and professionally capable of forecasting and estimating ROI numbers with realistic projections and considering that there are no colleges or universities for CAs they are self-driven to fulfil their aspirations of becoming a CA which on an average might take 3 to 6 years, achieving such goal requires a certain level of commitment and this aspect contributes to an overall development of the personality of a CA and being committed becomes an inherent quality of a CA. This kind of commitment is what an investor would prefer for their investments. To put this in perceptive a CA Co-founder will try much harder to ensure they keep perfecting the numbers, and achieving milestones becomes the prime goal and will keep the investors happy and might enable them to remain invested for a longer period which could potentially increase the chances of ensuring a profitable and healthy exit.
5. Understanding Tax
Businesses work on very thin margins and startups do not have the liberty to be an exception to begin with so when the business model involves working on thin margins it is imperative to understand taxes that are applicable on your business. A CA by profession knows this better than anyone else and has the upper edge in determining the tax implications and ensuring it has minimum impact by effective tax planning so whether it is income tax or the newly introduced Goods and services tax, A CA’s knowledge is useful and vital for any new business to succeed and if your Co - founder happens to be a CA you are more likely to save a lot of the funds which you would otherwise be required to spend on professional fees or end up paying higher taxes due to ineffective tax planning.
If you are a young startup with a great idea but you are struggling to find the correct approach, purpose and plan a you could choose a CA as your Co-founder to get the required support.