Money lessons for entrepreneurs
Established startup founders recount the personal finance
challenges they faced when setting up their businesses and list the factors all
budding entrepreneurs should keep in mind.
Securing funding to set up an enterprise can be
tough. So, typically, entrepreneurs employ savings to start their business.
While this reflects their entrepreneurial commitment, it often impacts their
personal finances and, in some cases, leads to severe financial strain. If you
too are looking to start a business, or have just started one, here are some
personal finance lessons from established entrepreneurs based on their
experience and learnings.
Avoid stretching your finances
Take the case of Aprameya Radhakrishna, Co-founder,
TaxiForSure (TFS) —a taxi aggregator later acquired by Ola. Radhakrishna
invested his savings of ₹4 lakh to
start the business. While on the one hand he strove hard to grow his company
amid intensifying competition in the taxi aggregator business, on the other, he
had to deal with the stress of managing his personal finances. Having invested
his savings in the business, repaying his education and car loan put him under
considerable pressure. He even had to take a personal loan. “These loans were
an added financial stress,” says Radhakrishna. Financial experts advise that
given the financial insecurity that comes with starting a new business, it is
best not to invest all of one’s savings into the business. “Startup founders
need savings to manage household finances till the business takes off. A fund
that can manage at least a year’s worth of expenses is a must for
entrepreneurs,” says Prableen Bajpai, Founder and Managing Partner, FinFix
Research & Analytics.
Keep your books in order
Since cash flow can be a problem during the early
days of a startup, entrepreneurs often forego salaries. Geetansh Bamania,
Founder, Rentomojo, who says that money management is the greatest challenge
for an entrepreneur, suggests that founders convert their unpaid salary into an
unsecured loan to the startup. The due amount can be claimed at the time of
need.
Most established entrepreneurs insist there must be a
clear record of all expenses borne by the founder to fund the startup’s
operational costs. Entrepreneurs should ensure that the company maintains
transparent books of accounts, so the process of reclaiming expenses is smooth.
It is best to take professional help for proper record keeping, including one’s
personal investments into the company. “When managing financial statements got
difficult for us, we hired a financial consulting company,” says Prasoon Gupta,
Founder, Sattviko.
Don’t jeopardise credit score
Exhausting credit cards to finance personal or
business expenses must be avoided. Outstanding amounts on credit card can lead
to expensive debt and as credit cards are personal, this debt will not show up
on the startup’s balance sheet. It will, however, jeopardise the founder’s
personal credit line. Defaults on credit card payments will bring down the
credit score and make it difficult for the founder to avail of personal loans,
should the need arise. Bamania says that having a clear business plan can help
save the founders a lot of trouble on the personal finance front. “Proper
financial planning for the business gives clarity on the capital required to
run it, which is very important for managing the operations within the
available funds,” says Bamania. Proper business planning will prevent founders
from dipping into their personal contingency funds or using other means, such
as credit cards, to fund business operations.
by Shipra Singh
ETW8OCT18
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