The future of the company must not be linked with the personal future of the entreprenuers
Start-ups are born out of inspired ideas, strong impulses which propel the entrepreneurs to throw it all into them and create something that they are proud of. Start-up, as the name suggests, is a company in its nascent stage looking to gain market share.The entrepreneurs are looking for investors at this stage to fund their ideas.
Here are some tips a young entrepreneur should consider while juggling the balance between his company and his personal finances:
Keeping company and personal finances separate: Though rarely followed, it is crucial to keep the company and personal operations separate, as the future of the company must not be linked with the personal future of the entrepreneur, due to likely dependence of family and other responsibilities on him.He could even look to drawing salary from the company so that there is adequate balance maintained between his present and the future.
Behavioural coaching: Our education system and universities teach us how to run our companies, but they are lacking when it comes to training an individual to manage his personal finances. Factors like sources of incomes, tax implications, return expectations, expenses to be incurred now and in the future after adjusting for inflation, children’s future, retirement, etc, are also important. Awareness on these points is imperative, since a start-up environment is vulnerable to volatility. Even while investing their surpluses, they must invest them in the funds and asset classes which are going to help them achieve their financial goals.
Concentrated holding risk: As the adage goes, “Don’t put all your eggs in one basket.” One of the main rules of investing is to manage your risks. A start-up entrepreneur could be having almost 80-90% of his entire net-worth invested in his company. It’s a dream for every entrepreneur to grow his business. But one should also look at the risk where he is only concentrated towards one company and there is no alternate source of income. Whatever they earn they invest in their company for their growth, hence they have a concentrated portfolio. If the company makes losses they may also incur loss.
...& ANALYSIS
- The future of the company must not be linked with the personal future of the entreprenuers
- Consider the risk that one is concentrated towards one firm and there is no alternate income source
- Look at drawing salary from the company, which ensures balance between the present and the future
The writer is founder and CEO, TBNG Capital Advisers
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