ENTREPRENEUR/ FINANCE SPECIAL.. Personal Fin Tips for Entrepreneurs

 Personal Fin Tips for Entrepreneurs 

Starting a new venture is always a daunting task for any budding entrepreneur. The paucity of capital to start, operate and scale a new business often forces the entrepreneur to dip into personal savings. For many in business it is difficult to rigorously separate personal finances from professional expenses yet some common pitfalls can be avoided. 

USE OF CREDIT CARDS
Poor management of personal finances by a founder often goes unnoticed as one of the significant reasons for the failure of a new venture. Using credit cards to plug the need for ready cash in the business can lead to growing debt that does not show up on a balance sheet. Most entrepreneurs who are bootstrapping their ventures insist that outstanding amounts on a credit card from business expenses must be paid off immediately. Any default on payments can affect the credit history of the founder. “To put it bluntly, they (credit cards) are for those who do not understand the basics of managing cash,” says Manish Sharma, the founder and chief executive of printing and documentation solutions venture, Printo.
BUYING INSURANCE
Choosing the right insurance policy depending on the stage of the venture is an important choice for an entrepreneur. However, using personal insurance to fund business expenses must never be an option. “That’s an absolute no-no, get insurance separately for your company, it protects your venture and is the right decision,” says Mukesh Bansal, founder and chief executive of Myntra.com, an online retail venture. The need for insurance comes into even sharper focus in businesses that deal with physical inventory, since it offers the entrepreneur protection against events of a calamitous nature.
OUT•OF•POCKET EXPENSES
Many first-time entrepreneurs bear all the operating expenses of a new venture until they raise an initial round of funding. However, reclaiming the spent money can be tricky. While some choose to convert the money spent into equity in the company, Printo’s Sharma suggests a different route. “There are very clear accounting guidelines set out that allow entrepreneurs to claim pre-operating expenses, however the entrepreneur has to ensure that the company maintains very transparent books of accounts,” he says.
SALARY ISSUES
Entrepreneurs who give up well paying jobs to launch a business, tend to struggle with the issue of drawing a personal salary at a cashstrapped company. Some have used innovative methods to overcome this by foregoing immediate pay-outs. Instead the unpaid salary is treated as a personal loan given to the company. “Salary can be claimed at a later stage and the amount due converted into a personal loan, by the entrepreneur who is a director in the venture”, says Milind Borate, a co-founder of Druva Software.

Biswarup Gooptu ET130125