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Home / Money / Personal Finance /  How to manage finances while transitioning into startup realm after leaving job?

NEW DELHI: After working and gaining decades of experience, many professionals dream of becoming their own boss. While going through this transition phase of becoming an entrepreneur, there are some fundamental challenges to overcome.

Hence, before you decide to transition into the startup realm, you should do a proper check on your financial status and preferably write a financial plan. This piece examines how you should plan your finances once you decide to work towards your own startup.

Anup Bansal, chief investment officer, Scripbox, said that the plan should make conservative estimates about your inflows based on your startup's stage and funding status. "You must have a noble understanding of the level of a financial impact you can bear without your normal monthly income. A timeline of high priority goals and the tolerance level around these goals should be drawn to achieve, without any compromise. The plan should also clearly document an exit strategy in case your startup does not progress as envisioned so that you do not jeopardize your financial health and goals," said Bansal.

Since you are taking a risk with a startup, it means somewhere down the line you are an aggressive investor, you may need to be conservative with your investments. This will balance out your risk capacity and risk appetite, in line with your overall risk profile. "It is suggested to have a lower allocation to equity with acceptable liquidity provisions. If you have a high equity allocation, the reduction may happen gradually, considering the market conditions and tax considerations," said Bansal.

If possible, clear your debts such as your credit card debt, home loans, education loan and car loan. The payment of a loan might take some time, but you must understand the fact that starting a new company with a clean balance sheet can make a difference. Also, cut short your expenses for a few months or years, this will boost your esteem to grow your business.

Similarly, estimate what you expect your new income to be in future and, accordingly, change your budget. All these payments should be followed by estimating your tax payments. Certain tax deduction benefits might also be available due to your transition. Make sure you take note of every such tax break.

While building a new career is a significant milestone, it usually has a big financial impact. Thus, it would help if you prepare yourself for that by getting a financial plan made by an advisor.

Bansal said, "Startups require more than just regular effort and attention. Someone transitioning into the startup realm may not have time to think about their personal finances and risk management. Emotions will likely play a significant role when making decisions between the startup and personal finances. Hence, you should ideally opt for an independent and trusted advisor who can play the role of a sounding board, who will hold you accountable to your plan, plan with you, and manage the financial risk for you."

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