Planning to start your own business? Kiran Telang shares a few directives on being a success in your venture and being a good leader.
You can never be fully ready for entrepreneurship; it is always a leap of faith. Having said that, it is good to keep some cushions and nets before you take the leap.
Starting with a why is always better. With so many millionaires being created every day through some start-up venture of the other, it is easy to get lured to the vision of being the next success story. If you have an answer to why you want to be an entrepreneur, it will be a good beginning. It will prevent you from jumping in to escape a job which does not excite you anymore, as a response to retrenchment or with the idea of making a quick buck. Once you have your ‘why’ in place you can get down to the nitty-gritty of creating your safety nets.
The first of it is that do not burn your bridges. For every success story there are ten stories of failures which never get told. You might need the same network to get back into a job in case your venture fails.
Second is to take your family into confidence. Your spouse will be your biggest support through the initial tough years. Getting his/her buy in is absolutely essential. If your kids are big enough to understand that money can buy things, they might be big enough to fear a lifestyle change. Talk to them about your move and why it is important to you and how it will impact them. Similarly elderly parents might be at a loss to understand the move from a steady well paying job to an uncertain business proposition. Taking them into confidence will ease their worries.
Check your personal finance situation, risks first. Health insurance for the entire family is an absolute must. Any hospitalisation due to major illness/accident can create a big blow to your finances. If your spouse is working, s(he) might have an employer cover which can be useful, still a personal health insurance must be taken. Life insurance for yourself and your working spouse should be shored up to meet any eventuality. The life cover must be enhanced to an amount which can help meet routine expenses and education for children, till they are independent.
Contingency fund plays a huge role in your personal finance when you are making a career switch to become an entrepreneur. You must provide for at least 18-24 months worth of expenses in a non-volatile, liquid instrument. This should include, living expenses, school fees for children, EMI’s and insurance premiums. The amount can be reduced in case the spouse is also earning.
On the liabilities side you should attempt to be debt free before you start your venture. This will give you relatively less stress of generating an income from your venture in a hurry. A missed EMI due to stressed earning in entrepreneurship can create a dent in your credit-worthiness. Your credit score will go down and will impact your future loan requirements. As a business owner you might need to give personal guarantees for any business loans that you might need. A good credit score will help the cause.
Life goals like children’s education and marriage, and your own retirement requires long term planning and investing. It is likely that you may need to dip into your assets created to fund your entrepreneurship during the initial years. This is likely to deplete your portfolio size and increase the time frame required to meet your goals. Since the education goals cannot be deferred, you will have to take a call between dipping into personal funds or raise funds from other sources for business. If you are fairly sure of being able to generate enough income after the first few years, you can take a chance of having higher savings for a fewer number of years later. But this is easier said than done. No one will be able to fathom the possibility of success or failure. Hence a judicious balance needs to be created.
The virtue of thrift cannot be appreciated more in any other situation than this. A simple lifestyle can ensure that the funds last longer. If you take care of the pennies, the pounds will take care of themselves. If you are careful with your spending both in personal life and business, it will be a boon.
Keeping business and personal accounts separate is another important thing. Even if you are not able to pay yourself initial few months, make it a point to have a separate personal income going forward. This income should be invested separately to build personal assets. Ploughing everything back into the business will increase your risk and may create problems in meeting personal life goals.
Have professionals by your side. Like you would employ professionals to help you in business it is important to have professional financial planners to manage your personal finance. While you focus on growing your business, they will ensure that your personal finance is in place.
Good luck happens when preparedness meets opportunity. So be prepared and take that leap of faith.