If you have decided to be an entrepreneur, just go ahead and do it. Try validating your idea with prospective customers rather than successful entrepreneurs
If you want to look out for positives in the recent recessionary trends in the economy, then look for the change in the attitude of
the employees. After facing the threat of uncertainties at the workplace, many employees who have been sitting on the fence with their entrepreneurship ideas, actually have begun to think themselves as entrepreneurs.
My friend, Mamatha, too was in this frame of mind a few months ago. Having been an employee for nearly two decades, it came as a shock to her when her employer started issuing pink slips to her colleagues. Suddenly, the entrepreneurial streak within her, which hadn’t dared to come out till then, began to get visible. So, she began checking out on the options. Like most employees, Mamatha too decided to check it out with her former colleague who had turned into a successful entrepreneur. I have always wondered why many aspiring entrepreneurs want validation from their former colleagues and friends to start their enterprise. If you have decided to be an entrepreneur, just go ahead and do it. It probably pays to check with prospective buyers than successful entrepreneurs as the latter may not be able to see your dreams.
To come back to Mamatha’s story, the former colleague didn’t bother to ask her about the business idea or the project she was willing to take up. His simple question was `do you have a corpus of one crore in your bank account?’ Mamatha’s answer was a simple no though in reality she didn’t know what was her actual liquidity (surplus cash). Then her friend told her to work on building the corpus besides chasing the dream of entrepreneurship. Is it really important to be financially comfortable to chase the dream of entrepreneurship when many jump into it with the idea of making more money?
The financial comfort for an entrepreneur at the beginning of the venture is important due to a number of factors. To begin with, it puts less pressure on him/her to generate income and helps in achieving the goals for the new business. So what is a comfortable financial position? Is it as big as one crore Rupees for every entrepreneur or does the figure change according to the individual’s needs?
Since no two individuals can have similar needs of money, the definition of comfort too changes accordingly. But the yardstick for definition can be similar across various individuals.
In fact, it is not a bad idea to start the financial preparation for entrepreneurship a couple of years in advance before venturing out. As a practising financial consultant, I often come across many individuals listing out own enterprise as a goal among other things. While it is common among professionals like doctors or management professionals, a large number of mid-managerial professionals are thinking on these lines. So how do such professionals go about the task of preparing financially for entrepreneurship?
Reduce liability: The first step towards financial freedom is to be a zero debt individual. In this era of loan-for-everything, it may be difficult but if you are cherishing the dream of entrepreneurship, it is sensible to be low on outstanding including a strict no to credit card overdues and personal loans. Not only do they drain liquidity but also can affect credibility when you knock on the doors of the lenders for your (working) capital needs. Even keep the home loan manageable so that EMI is not a drain on the coffers.
Manageable cash flow: The perfect scenario for an entrepreneur is to be less or not dependent on the business in the initial years of starting out. That would mean one should have the funds which can take care of personal needs. Let’s assume that an individual needs Rs 50,000 per month for his living expenses. He should have a corpus or source of income which can generate this money on a regular basis without the new business contributing towards it.
Those who plan their entrepreneurial foray a few years in advance can work towards it by building the required corpus. For instance, an allocation in favour of equity (through SIPs), a combination of products which can generate monthly returns can be components of this corpus. For monthly returns, products such as post office MIP and mutual fund MIPs can do the job.
But make sure to provide ample financial security to your dependents through life insurance and health insurance policies. A term plan which can take care of future cash flow needs and all liabilities is a must for entrepreneurs.
Put pressure on your business: While less dependence on business is an ideal situation for an entrepreneur, no business plan can be complete if it does not have the legs to sustain on its own. Hence, even before number crunching in terms of revenues and profits, push your business to be self-reliant. The new enterprise should have the capabilities to fund its own needs which should also include the compensation of an entrepreneur. While every business has the potential to turn profitable in the long term, it is important for the enterprise to get into the habit of being profitable at an early stage. In fact, give yourself the target for break-even so that you are not forced to dip into personal assets. I would even suggest that treat your enterprise as an employer who is forced to pay your costs. Not only will it push you to be financially prudent but will keep you on your toes to generate revenues. An idea without the ability to generate cash can never be successful and it requires a combination of various components such as discipline, sustenance and smart strategy.
Srikala Bhashyam
Srikala Bhashyam is an investment consultant and runs her own consulting firm in Bangalore. She has been a regular columnist for the print and internet media on personal finance.
Disclaimer: The views expressed here are that of the author and does not represent the magazine's.
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