How Planned Investment can Help Entrepreneur Stay Ahead in the Race
A typical business in startup mode always lacks enough working capital since payments are most often used to fund another order.
Entrepreneurs often plan their ventures for a long time. They look up all the nitty gritty, manuevoure through periods of shortfall, motivate employees ahead of product launches, target potential business and constantly network, and consequently become the jack of all trades when it comes to their company.
Yet, investment planning is something that they always seems to ignore. Without saving and investing money for themselves and their business, they become vulnerable to the demands of loan sharks and venture capitalists. Money is the lifeblood of any business. This is why even if your venture is running okay today, you should ensure there is enough of it come a rainy day. Let us understand why and how you can fine-tune your investments to become the better version of the entrepreneur you already are.
Not a one-off, But a Habit
Your business may be going along fine. But unknown problems always lurk around the corner. A typical business in startup mode always lacks enough working capital since payments are most often used to fund another order. Make a habit of saving and investing a fixed portion, say 15%, of surplus from your business every month. This means that you as an entrepreneur will save every month, instead of waiting for the surplus from the bumper order two months down the line. Since you would need to use these savings anytime, don't block them in long term investments. The more liquid the savings, the quicker you can use them when your back is against the wall. There is a pitfall many entrepreneurs can avoid - plan your business tax outgo in advance, and don't make the savings the recurring source of tax payments. These savings should be segregated totally, and regular doses will help you build a neat corpus in no time.
Let Employees, Investors Know
Saving money from a business will require flexibility. But it's doable and the advantages are mani-,fold. When you are taking so much pain, let stakeholders know. As a private individual and the leader of your venture, the goal behind your savings and investments should be communicated to employees and investors. They will understand the true motive behind your penny-pinching moves and respect you for what you are. A famous CEO of a software company based in Benguluru always travelled by a bus when he visited Chennai or Hyderabad. His frugality wasn't initially understood by employees and stakeholders, but once he explained his reason (air travel is expensive and not always necessary), everybody started following in his footsteps. There are many costs that your business may be incurring that may be streamlined and lowered. A blanket 20% cost cutting exercise may backfire, but people support initiatives when you explain the reasons for saving and investing that money.
Entrepreneurs not Saving are Inviting Trouble
It will surprise you but research and different studies have shown that well-run enterprises often face their moment of truth during an emergency. Without saving and planning investments, a critical lifeline is always amiss even if the venture is being managed well.
A large order's outstanding payment, compliance related costs, necessary technological upgrade or even some labour related outgo can test finances in a major way especially if the legal route is opted by either party. Savings and investments help tide over such unforeseen circumstances. Having proper financial advisory and consulting is an important part of the entire savings-game.
Optimal solutions that not just stress your venture's fledgling finances and also give you room to breathe are required. Such jobs cannot be done by your accountant or auditor. A 360-degree planning involving a study of the nature of your business, risk management measures in place and steps required to achieve financial peace.
As your business grows, you can achieve financial freedom quicker. But till that moment comes, it's always better to seek expert advice on how to navigate through the savings and investments minefield. This is important because your risk profile, savings habit, goals and journey will be markedly different from somebody else. This is why all entrepreneurs, no matter if you have started work a few months ago, should immediately understand and put in place a solid plan for investments.
Anil Rego is the CEO and founder of Right Horizons, an end-to-end Investment advisory and wealth management firm. An MBA and CFA degree holder, Anil believes in the Contrarian approach of wealth management. His areas of expertise includes Corpus fund management, tax planning and end to end financial planning for both residents and NRI investors .
Anil has worked for Wipro as Business Planning and Merger and Acquisition Manager before starting Right Horizons in October 2003. RightHorizons has branches across Bangalore, Mumbai, Chennai and Hyderabad.
Anil has been a columnist in leading Indian newspapers. He also routinely answers queries in mainline publications and websites. He is also a Guest Lecturer with various business schools like ICFAI, ITM and Union Bank School of management. Anil has also served as member, Board of Governors, at IBSAF.