“Financial planning is a key cog in a company”
If this saying reminded you of your company’s accounts first, then you might be looking at the picture from a wrong angle. Stick with us till the end of the article to find out why.
Often, the financial woes of the business are intricately linked to the personal monetary problems of the entrepreneur himself. For an entrepreneur, managing his personal monies well is half the battle won when it comes to managing his venture’s finances.
As someone whose expertise lies in personal finances and runs her own startup, here is my experience and learning condensed into 5 points to keep your money situation afloat if you’re starting a business.
Should we bootstrap the company or seek funding?
This is a crucial decision as it decides your company’s future cash flows. Those who bootstrap their companies witness all or most of their savings getting invested in the company. Entrepreneurs who get funded generally are able to draw out some salary from the company. But that does not necessarily make one preferred over another. While the decision to bootstrap vs funding depends on a lot of strategic factors, discussing the eventualities with the right financial planners may help you manage your personal finances better and mitigate risk over at this website.
Track your money!
You need to stay on top of your cash flow. Keep a tab on each Rupee, from where it is coming to where it is going. Once you kick start your business, you will tend to get too occupied with what the business demands. This leads to putting your own finances on the back bench. Monitoring your personal finances regularly will help you to analyze and discover ways in which you can strike a balance between your personal finances and your company finances.
Build an emergency fund
If you’re starting a business, starting without a personal emergency fund is a bad idea.
Aptly, an emergency fund should cover about 3 to 6 months of emergency expenses. You can create this fund using your current savings. This should never be invested in your business. During lean periods in your business, your friends and family may or may not be around but you can at least turn to this fund. (Unless you exhausted it which brings me to my next point).
Ensure this fund is replenished at regular intervals. Running out of it might not be such a safe idea as the unlikeliest things hit you at the unlikeliest times in a business.
Maintain financial stability
Draw a line in the sand so that you do not mix your personal finances with your business finances. Keep your personal and corporate accounts separate. This will not only allow you to save up for the future but shield you from corporate liabilities and debts.
Define a clear-cut role that you would play in the life of your business and pay yourself accordingly. Create a good financial plan for yourself. Doing this may be very tricky but you can always consult a financial planner or advisor. Many entrepreneurs are ignorant of their personal finances in this context and this usually ends up to be the ultimate reason why they go broke unexpectedly. Maintaining financial stability will protect you from liability and severe tax burden, as well as generate lucrative business leads.
Write down your financial and personal goals
Irrespective of whether your business does well or takes a longer time to get established, your life goals do not change their goal-post. If you are married with a child, you still need to plan for your child’s education. And have liquidity for those sudden medical expenses. It is therefore important that your personal goals have a Plan B in case things do not work out in your venture.
There you have it- 5 golden tips from the experts. With your personal finances organized and under control, your chances of business success will be even higher.
A successful business is all about striking a balance with your finances. Be smart, be frugal, and put your money into avenues which will lead you to the pastures green with success.
About the author:
Shruti Agrawal is passionate about helping individuals take better financial decisions and determined about embarking women on the journey towards financial independence. She pursued her bachelor’s degree from ST. Xavier’s, Kolkata in 2009 and went on to pursue an MBA in finance from the MDI, Gurgaon. She completed her CFA from the CFA Institute, USA alongside her MBA. With over 7 years of corporate experience across Strategy and Finance, Shruti found her calling in helping people get their heads around the right use for their money. At CAGRfunds, she is the brain behind the online platform and client relationship.