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Here are some money management tips for aspiring entrepreneurs to help them navigate the path much more easily.
For most, the idea of launching a new business can seem a bit unnerving, especially if one isn’t equipped with the right tools. However, as an aspirational business owner, you could assuage any worries you may have by learning from those who are successful. Yes, when it comes to creating a productive business, knowledge is power.
Here are some crucial financial tips to help you get your startup on the road.
Don’t quit your day job
You may be considering quitting your regular job to start your business. If you’re short of funds, you may want to continue in your current job until you are financially stable before you take the leap to entrepreneurship. You could use your time to hone your business plans, familiarise yourself with legal issues, and reach out to like-minded professionals.
Most successful entrepreneurs separate their personal and business accounting and plan both separately. Just like short-, medium-, and long-term goals in personal finance, you may want to allocate your corpus in different investment vehicles to meet your goals; and set your financial goals accordingly. For instance, if you are saving to kickstart your business 2-3 years from now, consider a Systematic Investment Plan (SIP) in a balanced fund that can grow your capital with equity exposure on the one hand, and protect the downside with investments in debt-oriented securities on the other.
Avoid credit card debt
Credit cards may seem an easy solution to budding entrepreneurs to meet working capital needs. As tempting as it may seem to bill your business expenses on your credit cards, it is prudent to avoid credit card debt as much as possible. Not only is it the most expensive form of debt (with an annual interest rate of 36-40%), the inability to repay the outstanding amount in time can result in the erosion of your personal credit score. A poor credit score may lead to a negative impact on both your personal and business financial health.
Build an emergency fund
One of the cons of bootstrapping your own venture is that you may not have a consistent cash flow, to begin with. To avoid plunging into debt every time you’re faced with a cash crunch, it is prudent to build a cash reserve to deal with your business needs. As a thumb rule, you may consider putting away 5% of your personal income into a liquid fund each month. A liquid fund, as the name suggests, lets you redeem your investments at will and delivers superior higher returns compared to your money lying idle in a savings account. This way, you could direct the money towards beefing up your emergency fund or cash reserve to fall back on during times of crisis.
You may have seed capital to launch your idea, and you may be considering investing in products or services before you set up your business. But it makes sense to hold on until your business has taken shape before you use the funds for purchases. Successful businessmen and businesswomen stress on the virtue of frugality as a mantra for entrepreneurs. By budgeting your expenses and planning your purchases carefully in the early stages of your business, you may be able to use the funds for critical expansion at a later stage.
Get the right insurance
As a budding entrepreneur, your ability to mitigate risks will be a key factor impacting your new business. It is therefore prudent to think about the risks your business is exposed to, especially if you’re dealing with physical inventory. For instance, every startup must examine its exposure to liabilities. Liabilities may arise from damage or defect in products, or due to third-party exposure. Choosing the right insurance cover for your business needs is therefore crucial. General insurance providers provide a plethora of liability insurance products that are suitable for startups, and you should check these out.
Maintain a good credit score
To apply for a bank loan or any other credit for your business, your personal credit score is taken into consideration. This score, which based on your previous loan and credit history, is a telling barometer of your financial health. With a good score, your chances of securing a loan with competitive interest rates will be much higher.
Seek a mentor
When it comes to success in business, nothing tops experience. Your chances of success could be enhanced manifold with valuable guidance from a mentor. A mentor not only acts as a sounding board but offers timely advice to help you to leapfrog your business. For instance, Facebook’s Mark Zuckerberg had a mentor in the legendary Steve Jobs, while Jobs had a mentor in Mike Markkula, an early investor in Apple.
Government incentives for startups
The Indian government recognises the potential of start-ups to uplift the Indian economy. In this regard, it has made a number of benefits available for aspiring entrepreneurs. In addition, various compliances have also been simplified by allowing self-certified compliance methods through the start-up mobile app. For starters, you can register on https://www.startupindia.gov.in/. Once the Inter-Ministerial Board certifies your start-up, you can become eligible for income tax exemption for three years. Several other facilities such as research parks, easy access to capital (A fund of Rs. 10,000 crore has been set up to provide funds for start-up capital) and the opportunity to apply for government tenders. As an entrepreneur, you can leverage these benefits to get a foothold in the early stages of your business.
To sum up
In the end, it’s all about building a dream, brick by brick. Take baby steps, save up for your dream, and invest wisely. You should able to transform your riches into wealth and see your business grow by leaps and bounds.