Startup ChallengesWorkplace

Tips for Startups to Manage Financial Crises Facing Them

The COVID-19 dilemma has posed a challenge to the creation, survival, and growth of start-ups, which are the heart and soul of the Indian economy and are seen as a driving force for the nation’s progress and a contributor to India’s ambition of becoming Aatmanirbhar. Consequently, many startups face financial crisis, as a result. With over 50,000 start-ups and 40 or more unicorns, India now has the world’s largest start-up ecosystem and has created over 5 lakh jobs. According to estimates, India might have more than 1,50,000 start-ups, 4+ million workers, 100+ unicorns, and a market worth more than thousands of crores by 2025. However, many startups face financial crises, and here we will learn how to tackle them properly.

But creating and running a business is not an easy thing. It takes lots of effort and hard work. While scaling a startup, there are many challenges they encounter. And one of those challenges is the financial crisis or economic crisis. A Financial Crisis can destroy any business if it isn’t tackled correctly. Despite this disastrous position, start-ups can still have hope that they will be able to turn around their companies on the internet and develop new markets with expanding prospects. In this article, we will talk about how startups face financial crisis and tips to overcome them.

What Constitutes a Financial Crisis in Startups?

Financial crises can happen at any point in your company’s development. All startups face financial crisis. But, how startups face financial crisis is very crucial. One of the main ways your company could experience a financial crisis is through poor money management for carrying out everyday tasks, unprofitable initiatives, unproductive staff, unnecessary and excessive spending. If there is any financial bleed, you should keep a careful eye on everything. Don’t dismiss the small losses since they will quickly grow into significant ones. Recognize your difficulty and take steps to overcome it by being flexible and adaptable when making critical financial decisions. You’ll benefit from it and avoid tragedy! The next thing to do after running into financial difficulty is to deal with it! Most startups find facing this financial crisis pretty challenging. The most crucial factor is how effectively you approach it.

Startups Face Financial Crisis: Tips to Manage them Easily

The daily challenges of running a startup are genuinely endless! It takes a lot of blood and sweat to build a successful business from a startup. However, the entire built-up business structure collapses due to confident amateurish financial choices. How would you handle a similar economic catastrophe if you saw one? Here are some tips for handling a startup’s financial crisis:

Startups facing financial crisis

1. Make a Sensible Budget  

A crucial component of running a startup is planning the budget because it enables you to comprehend the needs and desires of the startup. You should prioritize the expenses to be made depending on these needs. Although it may seem like a laborious task, maintaining a budget that takes all relevant factors into account is crucial to the operation of any organization. 

2. Keep Debts Under Control 

Debt is the ideal complement to starting a business. Keep an eye on debt payments because it’s taking longer and longer, and the pile is growing. Create a separate fund just for paying off debts to prevent them from becoming an impossible burden. Using this strategy, you can manage your debts more effectively and avoid long-term obligations. 

3. Don’t Hire More People

The costs associated with hiring a new employee, such as desks, taxes, computers, salaries, and so forth, go up quickly. Try staff outsourcing! You can pay them hourly or daily. Nowadays, there is a new trend called freelancing. Freelancers effectively cover office space, internet connection, and computer expenses. So don’t expand too fast. And Don’t hire new employees if your budget is not enough. 

4. Keep Your Personal & Business Finances Separate 

By keeping separate finances, you can keep track of all the transactions. Keep your records clear to make the accountant’s job easier. To prevent using any of the money made from the firm for frivolous expenses, you should be paid a separate salary from the other employees. Remember that the money you make from the business is not yours to spend however you choose.

Possible Reasons Why Startups May Face a Financial Crisis

Generally, there can be many reasons which can affect your startup. Some challenges, like Covid-19, are even unavoidable. But here we are giving you some possible reasons which can cause a financial crisis. To understand these points easily, imagine you’re starting a business and being in the role of an entrepreneur.

1. Issues With Business Plans

A successful firm is built on a strong and practical business plan. You will describe your business’s realistic goals, how it can achieve them, potential issues, and remedies in the plan. Through research and surveys, the plan will determine whether there is a need for the business, define the costs and inputs required for the operation, and describe strategies and deadlines that must be reached.

Once the plan is in place, it must be carried out. You are setting yourself up for failure if you start increasing your spending or changing your tactics. If your company plan hasn’t shown itself to be overwhelmingly wrong, stick with it. If it is incorrect, it is better to identify the problem, address it, and implement a new strategy than to alter your business practices in response to imprecise observations. Your business will cost more money and have a higher probability of failing if you make more errors in creating business plans. 

2. Far Too Little Money

You are not in a good position to request another loan if you have established a business and things aren’t going well, you have little capital, and your business is struggling. If you start out being realistic, you can plan to have enough cash on hand to last you until your firm is up and running and money is coming in.

In the beginning, trying to stretch your budget could result in your startup never taking off, leaving you with significant debt. Also, before starting a startup, you should know how and where you will invest your money, and you should be prepared to face a financial crisis.

3. Not Doing Market Research 

If you’ve always wanted to start a real estate agency, and now that you can, you decide to do it. However, your enthusiasm prevents you from realizing that the housing market is currently in a slump and that there are already too many agencies in the area you want to work in, making it extremely difficult for you to succeed. This is a mistake that guarantees failure and financial problems right away. 

Instead of forcing your product or service into a market, you must first identify an opening or unmet demand. Instead of creating a need and persuading people to spend money on it, it is far simpler to meet an existing one. The first step of creating a startup or any product is doing the proper market research. If you don’t do it, you can face many difficulties. 

4. Growing Too Quickly 

It’s time to grow your company now that it’s established and profitable, but you must approach the growth as if it were a new venture. Make sure you comprehend the regions and markets into which you will be spreading your company’s reach if you do so. Make sure you comprehend your new products, services, and the intended client as you do with your current successful organization if you are broadening the reach and emphasis of your enterprise. 

5. Staying Rigid 

Don’t grow complacent once you’ve completed the planning, started your firm, and built a clientele. The need you’re meeting might not always exist. Keep an eye on the market and know when your business plan needs to change. Being aware of significant trends will give you plenty of time to modify your approach and continue to be successful. One only needs to look at the music industry or Blockbuster Video to understand how drastically booming industries may alter.


The trend of startups is rapidly expanding in India. With YoY annual growth of 12–15%, India is the third-largest startup environment in the world. Over 14,000 startups are present in the nation as of 2021–2022, according to the Economic Survey 2021–2022.  As the nation experiences its second wave of the startup boom, entrepreneurs must learn a lot and develop various skills to succeed in their businesses. There are many significant financial obstacles (such as economic crisis) that Indian entrepreneurs frequently face as they work to expand. Financial difficulties are a fact of life for every organization. Still, with proper financial management, any firm may start financially responsible and maintain its position as a market leader. 


1. What are the finance-related challenges startups can face in India?

Here is a summary of some of the financial difficulties that Indian entrepreneurs face:

  • Lack of financial resources
  • Revenue projection 
  • Unforeseen expenses 
  • Poor cash flow
  • Mispricing
  • Supporting infrastructure 
  • Complex regulatory environment 

2. Can an emergency fund help you in a financial crisis?

Being ready for any circumstance usually makes handling a crisis easier. Similar to how creating an emergency fund can prevent any potential tragedy and keep you from going bankrupt! Your access to emergency cash will enable you to meet all your obligations related to renting, utilities, services, payroll (including your income), taxes, vendors, and so on.

3. How to create an emergency fund to be prepared for upcoming obstacles?

You should allow that money to expand over time rather than merely creating it. Open a savings account and make a fixed deposit that must be made every month. Among your other alternatives are fixed deposits and government bonds. Mutual funds can be purchased with as little as Rs. 500. Doing so will help your money grow, and you can withdraw the funds at any time. Get insured! You should be equipped to handle any disasters that may arise. You should begin investing in the stock market if you have the capacity for risk!

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