Home / Money / Calculators /  Have a Flipkart like-idea? Bring it out

The possibility of becoming a successful entrepreneur is higher than that of winning on Kaun Banega Crorepati. There are more than enough examples of people who chucked their salaried lives to don the hat of an entrepreneur. Sachin Bansal, for instance, was working with online retailer Amazon in 2007. Today, he is a millionaire and the company he setup with Binny Bansal, Flipkart, is now India’s largest e-commerce firm, and has bought online fashion retailer Myntra.com for an estimated $330 million.

Jan Koum, who was working in Yahoo!, co-created WhatsApp, a messenger app, which was recently bought by Facebook Inc for $19 billion.

Encouraged either by such stories or thanks to sheer passion, people are leaving behind their nine-to-six (sometimes 12) jobs and taking the plunge into entrepreneurship.

Jimmy Nadar, 39, began his sales career in 1996 with a telecommunication company which is now Vodafone India Ltd. Later, he worked with Bharti Airtel Ltd and then shifted to Dubai to join Sony. During this stint, he also took up a part-time job with a sailing club to teach sailing. “I have been sailing since the age of eight. Sailing is my hobby and passion," said Nadar. After a short stay of a two years in Dubai, he returned to India to join a sailing company as a manager in Mumbai. Few months into the job and Nadar decided to launch his own company, Gateway Sailing Club in 2011, with one four-man crew Seabird class boat that cost 12 lakh.

But unlike Bansal, Nadar didn’t have venture capital backing. He was completely dependent on his savings and a loan he took against gold that belonged to his wife. “Today, Gateway Sailing Club has turned the corner and is a profit-making venture. We have three boats now, and plan to buy a fourth one this year," said Nadar.

If you, too, are mulling over the idea of starting your own venture, here is a financial checklist you need before you take that leap because for every success story, there are many others who didn’t make it. Therefore, it’s best to take care of a few things first.

Focus on cash flow

The first step is to structure your cash flow. “Cash is king when it comes to starting your own business. Many good ideas collapse due to lack of money. Hence, make sure you have a positive cash flow till you think your business will start making money. You will have to create a system of cash flow both for personal and business purposes," said Surya Bhatia, a Delhi-based financial planner.

In terms of personal expenses, make a list of all the requirements—school fee, insurance premiums, household expenses, and everything else. The thumb rule for a salaried individual is to keep aside at least six months of expenses as emergency funds. For self-employed individuals, it will be more: at least 12-24 months’ expenses.

Next, keep a buffer amount for unforeseen events. “To begin with give yourself at least a few months to create a system of cash flow. Consider taking help from your spouse, parents and friends," said Bhatia.

Rinku Suri, 42, runs a yoga institute called Yoga101 in Mumbai, which she launched in 2013. “I had calculated my expenses and had a broad idea as to how much I would need for the next couple of years," said Suri.

One way, and the most effective way, to protect yourself and dependants is to be adequately insured. If things go wrong, there should be a safety net. Ensure adequate life and health cover, and then coverage for liabilities such as home loan. Factor in premiums for all these in the personal expenses list. Now, we can move on to business expenses. This will depend on the type of business and the individual’s money position. Nadar, for instance, needed 12 lakh immediately to buy a boat to start his sailing venture. But since banks don’t give loans to buy a floating object, he had to rely on loan against gold. On the other hand, Suri owned a property, which she used to start her yoga institute, and so didn’t have any rental or buying expense to bother about.

“Usually, people use their personal savings to start a business. Make sure you keep at least one year’s business expenses aside," said Suresh Sadagopan, a Mumbai-based financial planner.

Ask for help

Considering that there will be a huge change in money inflow since there isn’t likely to be much income in the beginning of the business, it makes sense to get professional help to deal with financial matters. “People who have an entrepreneurial mindset have a high risk appetite, which is quite evident from the fact that they moved from being a salaried individual to being an entrepreneur. This, at times, can become a deterrent for their finances. It would be good to take external help. As their risk appetite is naturally high, they will need someone to keep them grounded," said Srikanth Meenakshi, co-founder and chief operating officer, FundsIndia.com.

There are two parts of planning when you think of becoming an entrepreneur. Part 1 is to start creating a corpus, and Part 2, how to manage the corpus. “Almost 90% of the times, people underestimate the cost and they start taking money away from other goals such as a child’s education or their retirement. A financial planner will help you take measured risks," said Meenakshi.

Build a corpus

Since most people look at a three-five-year horizon to start a business, you should take a balanced approach to putting together a corpus. “Avoid illiquid investments (for a horizon of 3-5 years). Allot adequately to debt and equity funds. This allocation depends a lot on the individual’s risk appetite. If you are an aggressive investor, look at equity; but move your funds to debt as you get closer to your launch period to avoid any market related shocks," said Anil Rego, a Bangalore-based financial planner.

Manage liabilities

A pile of bills isn’t what you want, especially when you don’t have an income coming in. “It makes sense to pay off all your debts before venturing into a territory where income is uncertain for a while," said Deepali Sen, founder and partner, Srujan Financial Advisers LLP. These are words from the horse’s mouth. Sen, herself a salaried-turned-entrepreneur, paid off her loans, which included a home loan, before starting her company in 2013.

“A loan is a big liability, and if you miss your payments, it affects your credit report too," said Sen. However, not everyone needs to do this. If you have a source by which the loans can be serviced, you needn’t pay off the loans. Nadar, for example, not only kept his home and car loan running, he took on more liability through a loan against gold to start his business. “I was completely dependent on my wife. She took care of all the loans and expenses," said Nadar.

Most of us have at some point thought of starting a business. We have bought and read books, listened enviously to old classmates who are running their own show, had serious or not so serious chats with friends and colleagues on business ideas. But to make the idea a reality needs gumption, money and a free mind. For the first, you have yourself to depend on. For the other two, a step by step approach will do the needful.

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