While the idea of running your own business or seeing an idea turn into a successful venture seems spectacular on paper, the reality could sum up totally different after all.
Running a business demands a certain level of attitude along with a considerable level of time, effort and money. Having strict control over every aspect of finance-related matters is an essential component of running any business.
Being an entrepreneur is one aspect, personal finances are different from business. There is a need to address personal financial concerns in a separate manner.
An individual will also be required to take into account the positive and negative phases experienced in an entrepreneurial journey. These are likely to have a direct impact on personal finances. That is exactly the reason why meticulous planning is essential in this regard.
Here’s the lowdown on a few ideas that could help in establishing a preparedness for sailing through any personal financial situation.
Personal and business finances should be separate: If not undertaken, this would lead to a scenario where an individual fails to maintain a distinction between the two and ends up scooping out funds from personal reserves to fuel the day-to-day running of a business entity. Ultimately, this would lead to compromising on the personal financial situation, which could pose a precarious condition in the long run.
Ideally, pay yourself a salary, in no way personal investments or retirement funds should be utilised to address concerns of business losses. Also, create separate accounts, different credit cards and e-payment modes for personal and business usage.
Generate passive income sources from investments: An entrepreneur is not likely to earn on the first day itself. However, concerns related to personal expenses will continue to rise. For instance, there are bills in the form of utilities, school or college education fees, or medical expenses to pay. There is a need to invest in a manner that suitable income streams are generated to cover regular costs. Mutual fund schemes along with a systematic withdrawal plan (SWP) introduce a suitable option in this regard.
One can also look at balanced or hybrid fund schemes to cushion the volatility experienced in the stock markets while acting as a hedge against inflation.
Adequately plan for any unexpected scenario: A tough economic situation or a family emergency could arise unexpectedly and hold the potential to disrupt the financial balance. Therefore, it is essential to remain prepared to address any such sudden concerns.
When times are good in terms of finances, it is better to direct some money into the emergency fund, which should have a corpus built up to sustain for at least three to six months.
In addition, investment in a liquid mutual fund could also prove to be a wise move.
Adhere to a budget in a strict manner: There are chances that a newly set up business may take some time to gather pace. During this phase, there is a need to keep an eye on the inflow and outflow of cash.
Charting out a budget and sticking to it religiously helps in this regard. This way an individual is able to keep track of income and expenses and if need be, make necessary course corrections accordingly.
Focus on personal and business expenditures to keep track of indulging in any form of splurging and thus diverging from the financial goals in the bargain.
The first step towards setting up a successful entrepreneurship journey is to secure personal finances. The rest of the things tend to fall in place automatically then.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.