Financial planning is much neglected for young entrepreneurs. Here are the five simple rules to follow for upcoming entrepreneurs for their financial planning.
Are you counting your notice period in your job? Thinking of becoming an entrepreneur? Wait, Do the proper financial planning for those hard days before plunging into the entrepreneurship.
Entrepreneurship is a long-cherished dream of many of Indians right now. You are going to start a profitable business and want to monetize your billion dollar idea. You have to have belief in your own idea as well as you have to cross a long path of struggles and perseverance.
During the days of struggling, your personal finance is going to be affected. But if you take these following five simple steps of financial planning which will help you to breathe easily before starting your business.
1. Cutting down of Expenses
At the starting of a business, you cannot have the lavishing six figure salary. It may happen that you don’t have the salary for first few months because your start-up has not yet started the revenue generation. When your income is not increasing, you have the only option of cutting down your expenses. Tiny steps such as taking public vehicle instead of a car while commuting to and from the office can help you to sustain in the difficult days of entrepreneurship. You have an unlimited data plan for internet at home, take a limited plan with lower monthly rental. If possible, take the rent of office floor at a cheap location, not beside the main road. When you can afford to shift the office to a good location. I have given some examples only whereas I think you can judge your situation best and take the decisions accordingly.
2. Stick to the budget
Merely cutting down on expenses generally not happens. You need a target where you have to stop. Prepare your household budget and follow it wholeheartedly, no matter what. Try not to use your credit card which increases your expenses unknowingly. Always maintain a copy of writing the expenses and check it out at certain intervals so that the expenses are within the budget. If writing is too difficult, you can use smartphone apps. These expense tracker apps read the transaction SMS from credit card companies, banks and update the various expenses. You can also set the various reminders for paying the electricity, telephone bills etc.
3. Contingency Amount
You don’t know when you will have a steady flow of income after becoming an entrepreneur. It is highly uncertain even if you have a proper business plan. Accumulation of Contingency amount is of highest importance for a future entrepreneur. A three to six months expense as contingency amount is safe for a person who has a steady income. But in this case, you need more than 6 months expense as a contingency amount. You save at least a year’s expense to be on the safer side. This amount will be required in case of any emergency in your life before the income starts from start up.
4. Adequate Life and Health Insurance
Having an adequate insurance is a key factor for business owners who have dependents. Going through the entrepreneurship is the toughest choice you have taken. This may sink your family as well if something happens to you and you have already spent some money from your savings. Proper life insurance will help your family in case of earning member’s sudden demise. Term insurance coverage of Rs 1 Cr will serve the purpose. Term insurance comes at a very low cost. A premium of Rs 6000 to Rs 8000 yearly is sufficient for a 30-year-old male to have a life insurance of Rs 1 Cr.
Other than life insurance, another important thing is health insurance. Family floater insurance will cover all the expenses of hospitalization. If you have old age parents, you should opt for a separate health insurance as the inclusion of them in a family floater policy will raise your premium high. So, life insurance and health insurance is the necessary which you should take care before turning to entrepreneurship.
5. Don’t stop SIP
After becoming an entrepreneur, the first thing you forget is your personal life which is integrated with financial planning. During the initial days, you will think everything under the sun and stars is irrelevant which is not relevant to your start-up. Entrepreneurs cannot see the future if their start-ups fail. Though they are very much passionate about their ideas, the start-ups may not fly as they want. In the due course, they have passed two golden years of investing. Those two years of small saving may turn into big when they retire. So plan like in this way that you may not fail to pay the SIP. Invest in a systematic withdrawal plan which will pay your SIP of a mutual fund and thus you will be continued to invest.
All the very best to all upcoming entrepreneurs.