Five Money Mantras for Entrepreneurs Starting Up

Ensure you have at least 12-18 months of business expenses in liquid form

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The journey of entrepreneurship is indeed turbulent and rocky. While one embarks on this path to change the world, managing things on the money front is critical, if one has to survive the initial years of entrepreneurship. It is said that nine out of 10 startups fail. While there are many reasons, one of the important ones is that there is not enough capital.

Two types of capital need to be planned for sailing through the initial years. One is, of course, the startup capital; second is the personal capital required to stay afloat to pay the bills at home and keep the kitchen warm.

Here are five money mantras to keep in mind.

Build a Personal Sustenance Fund

From a personal financial planning perspective, it is usually recommended to keep aside six to 12 months of living expenses in an emergency fund.  But as an entrepreneur, you are taking a huge risk and will likely not receive any significant salary for a few quarters or more.

Hence, you need to ramp this up—plan between 18 to 24 months of living expenses. Choose a good liquid debt fund or an ultra short-term debt fund to keep this powder dry. We are not looking for debt funds that are aggressive risk takers. Go for direct plan mutual funds to get a better return by eliminating commissions.

Ensure Adequate Life Insurance

First off, make sure you have enough life insurance that covers your family’s living expenses until suitable income replacement comes in with time. Depending on your age and family situation, this could be 10 to 25 years of living expenses.

Two tips:

  1. Do not fall into the trap of inflating the life insurance required by linking to your recent income. Some agents push for a higher ticket size, and hence higher commission.
  2. Ensure that any outstanding goals (child’s education, for example) and liabilities (like home loan) are also covered.

Get rid of any dud life insurance policy that you may have purchased in the past from that persuasive and insistent agent.

Once the above math is done and the final cover required, go for a Term Life Insurance policy. If you already have one and are falling short of the cover, then buy another term policy.

Ensure Adequate Health Insurance

Most people plunging into entrepreneurship may be having a health insurance cover of their employer.  However, once you are out of the comfort zone and do not have an insurance cover, then you are exposed. To reinforce the peace of mind factor, ensure that you have a family floater of at least Rs 10 lakh-15 lakh (around $14,000-20,000) per family member.

Why is this important? To give you peace of mind that your family is protected. You can pursue your dream in full earnest.

Strap up Working Capital

As a startup, you are starved for capital in the initial years. More so, if you are boot-strapped. Ensure you have at least 12-18months of business expenses in liquid form.

Use a layered debt fund strategy to park this cash so that you get the benefit of flexibility (withdraw whenever you wish to) and tax efficiency. You can spread this fund across liquid and ultra short-term funds. Use different folios so that one of the folios can “age more”, thereby giving a potential tax benefit.

Cash is king and working capital is like oxygen for any budding business. So track everything like a hawk using a good accounting software. 

Collect payments on time and use a good invoicing system. Use all possible modes for this making it easy for customers to pay you on time net banking, subscription, mobile wallets. In some cases consider discounts if your product/service is fast moving or consumer focused.

Aim to be on top of your current cash balance and expected cash balance in six months from today.


Growth is Paramount

Ultimately the cash engine will keep humming only when there is more growth. So new sales is important; getting more from existing customers is even more important.  The latter may even take slightly lesser effort than pursuing cold prospects.