Chenthil R. Iyer
Finance Consultant
AUTHOR
The start up culture is here and is attracting youngsters and the middle aged with almost the same intensity. While today’s youngsters are brimming with ideas and are finding this as a channel to give those wings, many who have spent about two decades in the corporate world are desperately looking to escape the monotony in their lives through this route! Of course ideas and creativity have their own important places in a start up, but many take the plunge without proper understanding of the other crucial aspect of a successful business, finance.
Treat your financial life like a business!
In order to be successful in a business venture, one has to be financially disciplined. One can’t have the cake and eat it too. One has to bring down one’s lifestyle expenses so that the business can sail smoothly. For inculcating such fiscal discipline it is important that one sees the financial life through the prism of profits and losses. Any expense that does not aid in bringing in any advantage to the business at hand should be shot down. For instance, partying with friends, attending family functions, vacations, and eating out at expensive restaurants. You cannot give yourself the excuse of ‘what meaning does life have without these small luxuries!’ Every penny counts in an entrepreneur’s life and each minute of available time should be spent efficiently. Expense such as a gym membership is welcome as it keeps one fit as well as provides a subtle networking opportunity. Investment in books and relevant training programs are very much essential to keep the business growing and at the cutting edge. A good night’s sleep (once in a while) definitely goes a long way to keep one’s sanity, just like our laptops and other machinery need to be shut down and overhauled once in a while to keep them running in pristine condition.
Identify your personal goals
Not every entrepreneur dreams of building a billion dollar enterprise. The good news is that it is very much ok to not have such dreams. As the business grows and becomes self sustaining, it is important for the entrepreneur to start valuing one’s personal life and goals. You may find this statement to be contradicting the earlier point I made regarding fiscal discipline. But no, we need to live a complete life and excessive caution in the early years of business is only to ensure that there is absolute focus on it and to keep sufficient liquidity for nurturing it with the essentials required to run it smoothly. However once the business is self sustaining, the further growth of the business should not happen at the cost of one’s personal and family goals. Therefore it is important that an entrepreneur identifies these goals even before embarking on this journey. This provides the person with the relevant motivation to make the required sacrifices in the early stage and also prompts her to stop feeding the business excessively once it gets stabilized.
Separate your business finances from your personal finances
Every entrepreneur has to decide a cut off point after which he should separate the business finances from her personal finances. Most people fail to do that and their finances become quite messy after a while. They start spending for their personal expenses from the business account and keep pumping in their personal money into the business account without any accountability to either of the accounts! Depending on the age of the entrepreneur, one may decide what the cut off point is, with younger entrepreneurs getting the luxury of a longer gestation period as they may not have any family liabilities yet. While some personal goals such as purchase of cars may still be made from business money to take advantage of depreciation benefit, care should be taken to not change such assets frequently to keep the depreciation block alive! This leads to unnecessary loss of funds from the business account in the blind pursuit to save some taxes. It’s better to pay taxes and keep the remaining money available for business expansion needs than to spend it on depreciating assets meant for personal use. Also travel expenses of oneself and family for personal purposes should not be made from the business account.
Start a personal investment portfolio
Entrepreneurs should start accounting for their personal salary as soon as it is practically possible from their business, which should take care of their personal expenses. One should consider taking the right amount of salary from the business which one would have paid to hire a professional of the same calibre and experience. The personal lifestyle should still be controlled in such a manner that a reasonable surplus can be generated from the salary drawn and can be channelized into an appropriately diversified investment portfolio suitable for fulfilling one’s personal and family goals, be it short term or long term that were decided previously. The money in this portfolio should be used only for the identified set of personal and family goals and should not be dipped into for any kind of liquidity requirements of the business. All business needs should be taken care of by the business revenue, and any shortfall should be addressed through a business loan or a line of credit, so that sufficient accountability is there to repay such liabilities on time.
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