Personal finance mantra for new entrepreneurs

New entrepreneurs, here's your personal finance guideline...

An entrepreneur is one who has an idea and puts all his effort to make it work. But since a new venture requires a lot of money, starting up could also cause a big dent in one’s finances. Here is what you can do to keep it on track.

How little can you do for? In the initial stages, an entrepreneur needs to do all he can to cut down on his regular expenses. While those like insurance premiums and child’s tuition fee are fixed, every other area in which expenses can be curtailed needs to be looked into. It is very important to get an idea of how little you can survive on.

Know when to exit: “An entrepreneur needs to understand the importance of when to cut one’s losses and exit a business. This time frame should be decided based on a thorough feasibility study of all financials goals, especially if one has a family to take care of and liabilities to pay. The feasibility study will suggest as to how long can one stay without income and still not affect the most important and essential financial goals,” says Chenthil R. Iyer, chief strategist & trainer, Horus Financial Consultants.

Have a financial cushion: A business plan may look good on paper, but every business takes some time to take off. It is recommended that one builds financial assets that will help take care of one’s regular expenses for a certain period of time before the business starts earning revenues. “There should be sufficient financial assets available to last the first 1,000 days of business,” says Iyer. Creating this kind of a corpus may not be easy so you may need to liquidate some of your assets. “If one is locked into real estate assets that are illiquid, then it is better to convert them into financial assets before taking the plunge,” he adds.

Bring your spouse into confidence: A start-up is sure to affect the finances of a family for a while. It works best if one’s spouse has a regular income which can take care of the basic expenses. Even if that is not the case, he or she needs to be brought into confidence about the business plan, the expected returns and what the plans are to secure the family’s finances in the given period.

Postpone regular savings for a while: While regular savings are important, keeping them on hold for a certain period is a risk entrepreneurs would need to take.  However , rather than stopping savings altogether, Iyer suggests that it is better to keep the savings money in liquid form instead of locking up into long term savings as you may need it any time during the early stage of business. “Only insurance premia and EMIs should continue,” he adds.

Starting a business means taking a high amount of risk. But keeping the above in mind will ensure that your personal finances are not thrown out of gear.

Which personal finance mantra has worked for you mostly? Please share your views.