Avoid these pitfalls when you plan your business3 min read . Updated: 22 Oct 2018, 10:35 AM IST
See if you can sustain a living with the expected cash flow. If the answer is a no, put your business plan on hold
For Yash Kela, 27, taking the leap to entrepreneurship was smooth. Having been a venture capitalist for about three years, he had acquired the necessary skill set to manage money. “My previous job helped me understand the finer nuances of finance. It taught me about raising and managing finance," said Kela. What added to his advantage was a solid family support system. Kela founded Arrivae, an end-to-end interior design solutions platform, in December last year.
But not all are as lucky and that’s the result of poor planning. People usually tend to hustle during the gestation period. Amit Kukreja, registered investment adviser and founder, AmitKukreja.com, said 90% of businesses fail due to insufficient planning and most often the family suffers as most of the savings are deployed to save the venture.
Of course, breaking out on your own can be as daunting as it is exciting. But if you have made up your mind, avoid these mistakes in terms of managing your money.
Hurrying into entrepreneurship: Being an entrepreneur is a long-term commitment and requires patience, hard work and investment. It is necessary to assess your financial capacity. Figure out if you can sustain a living with the expected cash flow. If the answer is a no, be patient. “If needed, make a U-turn and put your business plan on hold until you are financially equipped to focus back on it," said Kukreja. In fact, use this time to analyse the state of the economy and the market conditions to make sure your entrepreneurial idea has enough oxygen to survive. “Deep dive into understanding the industry your business will belong to. Learning from similar industries in different markets and across various geographies will help you come up with a stronger business plan," said Lovaii Navlakhi, managing director and chief executive officer, International Money Matters.
Mixing business and personal goals: Always remember that your business goals and your personal goals are two distinct things. Set aside reasonable amount of fund for your personal goals such as retirement and family needs and aspirations such as child’s education costs. While planning your business, don’t lose sight of personal financial responsibilities that you have to fulfil in due course of time. Putting that on the back burner is a classic case of mixing the two goals.
“There should be clear boundaries to ensure how much financial commitment and time you are devoting to get the new venture off the ground, and what milestones need to be reached in how much time," said Navlakhi.
Being asset rich and cash poor: Make sure you have enough liquidity to meet your day- to-day expenses after you start your business as liquidating investments that were made for the long-term defeats the purpose of building those assets. Navlakhi said that in most cases the regularity of income disappears or the amount will be lower than the salary you drew from the previous job. You must keep aside funds for regular expenses and commitments for an extended period—what that period is depends upon when you expect to draw your first salary and the risks involved in the business. “You need to have liquidity because when you don’t, you end up digging up your assets such as real estate properties and other investments which aren’t meant for meeting your monthly expenses," said Priya Sunder, director and co-founder, PeakAlpha Investments.
In fact, you need to start by first building an emergency corpus. Once you kick start your business, there could be months together when you don’t generate any revenue or make minimum profit. Your emergency corpus will help you in those times. This fund needs to be labelled for personal finance. “You need to have adequate cash cushion to support your family until the new venture stabilizes. Money can’t be parked in risky assets. Your money should be protected from market volatility and if possible tax efficiency should be availed," said Kukreja.
The other mistake that you must absolutely avoid is to start off while sitting on a pile of debt or huge unpaid loans .
Not getting your family’s buy in: Professional and lifestyle changes are not restricted only to the budding entrepreneur. Your family must also make substantial adjustments to support you in your endeavour. “The mindset while starting a new venture where you want to keep your expenses in check needs to spill over to the family where wasteful or discretionary expenditure is curtailed. The family needs to buy into the entrepreneur’s dream to provide the support system and help him focus on his goal," said Navlakhi.