10 Apr 2020, 12:33 — 5 min read
Business is a roller coaster ride even for supposedly mature businesses. Either we are trying to disrupt or we are likely to get disrupted. New businesses have challenges of their own. An area where we have seen things go wrong is a lack of preparation financially.
Let us take up the financial part as that is the cause of 70% of our worries we ever have.
Generally, for non-entrepreneurs a one-year emergency expense is good enough to withstand most situations. However, if faced with a real tight situation where the chips are down, demand is low and not going anywhere soon, a 24-month corpus adds greatly to your sense of security.
Businesses generally take time to evolve and grow. Building the proposition and acceptability takes time. The product may change, the team may change, regulations affecting the business may take the smile off the face, what is it that will sustain apart from the never say die is the financial readiness.
Also read: 6 tips to improve the financial health of your business
It would come in the range of INR 10-20 lakhs by way of savings to begin with if you are in a metropolitan city or in any major city in India.
Rent accounts for 50% of your costs to begin with. Over a period of time it can come to 20-25% as things stabilize. If you own a property then there is an advantage, however factor in the opportunity cost in your calculation.
This needs to be parked in instruments where liquidity is available on a safe basis.
The principal as well as interest need to be available on an overnight basis if required.
One can look at overnight funds, liquid funds and fixed deposits to keep it simple.
Also read: 5 tips for SMEs to plan a financial strategy
Not advisable unless you know them really well. If they are unable to pay on time your best plans go for a spin. If you really need to help friends, then write it off as charity. If you are okay with that then go ahead. The downside is you may lose your money as well as your friend.
Equity is a good tool for the future and helps to achieve a major part of the financial goals.
However, when you are building a company you are trying to develop an asset at your end. If the opportunity is really worthwhile it is better to focus there than trying to time the market at least in the initial years.
Also, markets do keep on changing and can take a hit when you need funds the most and hence liquid funds/overnight funds are recommended.
One of the IT services entrepreneurs took a prudent step of having taken a Mediclaim. The advantage was that when the situation arrived and it generally arrives without a warning, he did not have to divert funds from business.
This helped him in investing more in his business.
When you invest in yourself and your team, that is the biggest investment in building your company.
In good companies a company policy of giving 5000-10,000 per year on a course/training of their choice exists. This not only helps to have a diverse set of skills, but also understanding what your team is really thinking.
The most important is to think of the venture as an asset. If one does that, ninety percent of financial problems can be solved and high-quality jobs can be created. Have fun! Build profitably.
Also read: 6 limiting financial beliefs that prevent SMEs from achieving business success
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Posted byAnirudh Anand Gupta
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30 Dec 2021, 14:31