Financial Planning Ready Reckoner For Entrepreneurs

The past five years have seen a steady rise in the number of Indians opting to go down the entrepreneurial route and bravely set up their own ventures. In fact, entrepreneurship in India is at an all-time high right now.

Entrepreneurs need to take some unique financial planning considerations into account. Particularly if they are transitioning from cushy corporate jobs, and have no family history of entrepreneurship, they could potentially struggle with money management early on. The fact that the average age that women and men transition into entrepreneurship globally are 30.5 years and 29.9 years respectively stands to further complicate matters, as that’s typically the age when familial pressures are at their highest as well.

A somewhat foolhardy optimism in the face of seemingly insurmountable challenges is a hallmark of most successful entrepreneurs. Ironically, it is this very attitude to life that sometimes makes them poor money managers. If you’re an entrepreneur, or planning to go down the start-up route, here are a few important financial planning related considerations for you.

Know your essential spends and provision for them

As an entrepreneur, it’s likely that if left unchecked, you’re various buckets of spending and saving will get commingled together into an unwieldy mess. It’s critical for you to sit down and arrive at an exact number that will suffice to take care of your basic needs each month – for instance, rent, groceries, and electricity. Multiply this number by six and keep it in a liquid fund – you never know when you’ll have to buckle down and stop drawing from your business for extended periods of time.

Save systematically – even if a little bit

Entrepreneurs, owing to their erratic cash flows, tend to disregard the act of saving money in a systematic manner, preferring to invest moneys as and when they become available instead. While this is a natural tendency, it’s vital to at least get into the habit of saving a little bit of money systematically. This could be as little as Rs. 5,000 per month.

Delay expensive purchases – embrace frugality

Don’t fool yourself – chances are, you’ll have to cut back on luxury spends and live frugally for the first three to five years that you’re setting up your business. Instead of resenting it, embrace it as part and parcel of becoming a successful entrepreneur. Depleting your cash reserves – or worse, taking on expensive loans – during the early stages of your entrepreneurial journey is bound to cost you later. The number of global billionaires who still drive their rickety old cars to work might surprise you! (Warren Buffett, Ingvar Kamprad and Mark Zuckerberg are cases in point)

Adequate insurance is absolutely vital

As you set out on your journey, make sure you cover your bases when it comes to safeguarding yourself and your family against unforeseen risks that could severely erode your personal wealth and put you in a precarious position. Being set back by five or ten lakh by a medical emergency during the early stages of entrepreneurship may weaken your resolve to continue. Make sure you’ve got adequate medical insurance and (if required) personal accident coverage in place.

Invest lump sums opportunistically and aggressively

When you do come into lump sums of money by way of business profits, you may be inclined towards fulfilling your long-pending wants and frittering them away in the process. After all, you’ve been cash starved for so long! However, it’s vital that you exercise willpower and discipline at these times, to invest surplus lump sums into long term, high growth financial or physical assets instead. That shiny new luxury car or world tour can wait until the time that you’ve built a more solid financial base for yourself and your family.

Don’t borrow for personal spends – even a little bit

You could borrow for your business, with the intent to pay it back from your future profits – but never, ever borrow for your personal spends. In fact, it would be a wise move to clear out all your pending EMI’s before you set up your business. As an entrepreneur, personal leverage is a strict no-no, and could in fact go on to materially impact your business decisions. Keeping yourself loan free actually allows you to take more long-term, well-structured business decisions.

Appoint a trustworthy Financial Planner

Far too many entrepreneurs suffer because they lack the time, bandwidth or mental energy to devote to managing their personal finances. As a result, they become easy targets for unscrupulous insurance agents and stock brokers, who use their hard-earned money to their personal advantage. As an entrepreneur, the support of an unbiased, trustworthy and conflict free Financial Planner will go a long way in keeping your money in order while you focus on what you do best – building out your business.