Six Money Management Tips for First-Time Entrepreneurs

October 20, 2020November 3, 2020 Anuradha C Chit funds

Gone are the days when the country’s youth were solely dependent on seeking government jobs or salaried positions in large private sector companies. Today, many qualified and ambitious youngsters are confident about starting their own entrepreneurial ventures and making a bold entry into the world of business. You could be an engineer with industry experience quitting and building your own start-up. Or a housewife deciding to market your home made good and services. There is no limit to the innovation and business potential of the first time entrepreneur.

When an entrepreneur ventures out on their own for the first time, they already have a business idea in mind. They also have a small, committed team of friends/colleagues/family members to support them on the human resource front. But most new business ventures struggle when it comes to the third and most critical input to their business – managing finances.

There are several aspects to finance management of a new business entity – initial funding, securing loans, working capital, purchase of assets and machinery, tax considerations, salary payments and so on. Though the detailed financial planning may vary depending on the nature of business, there are some common suggestions that every first time entrepreneur may benefit from.

We have put together a set of 6 money management tips that might be useful to a first time entrepreneur as a quick read guide. As a leading chit fund company, we also want to highlight the various ways in which a chit fund scheme can help a new entrepreneur in shoring up their finances. Read on…

1. Clearly define your short term and medium term financial goals

Without an end goal in mind, you wouldn’t be able to decide what path to take. So visualise the direction you want your business to take in the next few months, and also set feasible goals for 3-5 years ahead. On the financial planning front, you will need to work out revenue projections, cost estimates, working capital needs. Check out the various government schemes that encourage new entrepreneurs with funding and skill development programmes.

Most first time entrepreneurs begin with seed capital from personal savings and support from family/friends. This might be sufficient for the short term. Going further, in order to meet medium term expansion goals 2-3 years ahead, you can consider routing a part of your profits into a chit fund scheme. The lump sum will be at your disposal when you incur the expenses 2 years ahead. Or if you need the money urgently for some reason, you can withdraw the prize money much earlier.

2. Minimise debt in your initial funding

Relying on debt to meet your financial needs must be kept to a bare minimum. On the one hand, it is difficult for a new entrepreneur to secure debt at reasonable interest rates without past business credentials. If you do manage to get a loan, the interest liability adds a huge burden to your monthly working capital needs. Especially like in present times where businesses are going through a phase of low demand.

Instead, you can look at taking on more partners who are willing to invest in your venture by sharing equity with them.

In contrast with debt as a financial instrument, chit funds are a much better alternative. Whatever amount you set aside as EMI for debt repayment, you instead pool into a chit fund scheme. This way you get your lump sum at your disposal, without the danger of falling into a debt trap.

3. Make adequate arrangements for your working capital needs

In the present crisis, most business surveys point out that a working capital crunch is the biggest reason for SMEs to fail, even though they have a reasonably healthy order position. The fixed commitments such as salaries, bill payments, loan EMIs or tax obligations are to be mandatorily met.

Again, chit funds can come to your rescue here. For raising working capital, if you are used to availing an overdraft, a chit fund would work much better. That is because the repayment you make every month only covers the interest when you avail of debt. Whereas with a chit fund scheme, even if you pull out the entire amount early, your monthly payments cover both the principal and interest. Thus leaving you debt free at the end of the tenure.

4. Focus on necessities, not on ‘Wants’ or ‘Nice to haves’

Be ruthless in differentiating between essential expenses and discretionary expenses. Spending on improving your product quality, speeding up customer delivery or better employee welfare is a good thing, these things contribute to the growth of your business in the long run.

In contrast, spending on swanky office premises, paid marketing or celebrity endorsements may not help when the business is still new and untested. Once the product/service builds a good customer reputation, then you can always think of these extra spends to boost expansion.

5. Separate out your personal and business finances

Keeping a clear distinction between your personal money and the business finances is critical. Open a separate bank account in the name of your business. Keep track of your business expenses separately. It is required for monitoring your balance sheet and preparing your profit loss statement. It will also help you claim the relevant tax exemptions by showing legitimate business expenditure. You must also take care to file taxes separately – personal income tax and the company’s tax filing.

This way, you will be able to evaluate your profitability clearly. You can also scale your business easily by inviting partners, as you can estimate the value of your equity in the company accurately. And in the times of loss, your business liabilities will not directly affect your personal financial position.

6. Monitor your plans regularly and stick to them

It’s all very well to make grand plans at the start. But if you don’t keep a watch on the actuals as against the plans made on a periodic basis, then it may be too late to do a course correction. Very often, due to real life circumstances that cannot be anticipated, things start deviating from the original plan. This may go in the positive or negative direction.

You may find a sudden increase in demand which boosts your revenues beyond expectation. Or your input costs might fall as you might find a cheaper raw material. On the negative side, you may find a new competitor emerge all of a sudden who is cutting into your revenues. Or a situation like the present, where demand falls sharply due to external reasons.

In both cases, you must be prudent to revisit your original plans from time to time. And draw up updated financial goals. Even if your business is too small to warrant an independent auditor for scrutinising your books, make sure that you maintain your income-expense record scrupulously. When it’s time to grow your business to the next level, it’s the professionalism with which you run it that matters most.

About Us

Shantala Chits is in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 24 year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments. Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.

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Anuradha C

Anuradha is a freelance writer cum corporate trainer in the IT/telecom domain with over 18 years experience. She served in senior technical and management positions in Huawei and TCS for 10+ years. Then gave up the traditional corporate ladder to go solo - in order to escape horrendous city traffic and to be at her own boss!