Financial Planning for the Entrepreneurial Spirit
Amidst the exhilaration and joy of being your own boss it is important to know that an entrepreneurial journey can often be a bumpy one. This becomes all the truer when it comes to being financially prepared for this journey. The need for financial planning in entrepreneurship is very important. Buckle up as we get ready for a quick guide on the significance of financial planning for entrepreneurs.
1. Before you get started
While having an unique idea is important, bringing life to that idea is what makes it great. When you get into the real world, you need more than just an idea. You need to change your plan into a blueprint and work through it. You need to convert your ideas into financial projections. You have to estimate your costs and project the revenue clearly.
2. Understand cash flow
One of the most important aspects of financial planning is to know your cash. You need to be well aware of the cash flow in your business. You need to know from where money comes in and from where it goes out. Managing the working capital will help you avoid running out of cash and missing growth opportunities.
3. Be prepared for the challenges.
Despite passion and potential, most young entrepreneurs face financial hurdles. While the government offers various loan schemes to budding businesses, many challenges remain.
- Many banks and NBFCs hesitate to give loans, especially if it is without collateral therefore it is important to look for reliable lenders which can offer you loans without collateral.
- Maintaining a good credit history can play a crucial role in proving your creditworthiness to the lender.
- Inadequate infrastructure can hinder your business operations. Make sure you have enough backup.
- You need to be well aware of the regulatory framework. Make sure you are aware of the related laws and practices.
- Finding and then retaining skilled employees can be a challenge for startups.
4. Creating a budget
A budget is one of the most critical parts of your financial planning. It gives you the much-needed picture of how you can cut back on your expenses and stay on track. The right budget can ensure that you are spending your money in a way that aligns with your financial goals.
Remember: A budget has to be ever-evolving. It needs to be an ongoing process that you review from time to time so that it stays relevant.
5. Save up for emergencies:
The need for financial planning in entrepreneurship is most relevant in a crisis. From a medical emergency at home to a delayed payment, a financial emergency can have any form. While no amount of planning may be able to avert such a situation, building an emergency fund will always be good planning. You would have to set aside a chunk of your income on a regular basis. Having at least 3 to 6 months of business expenses is a general rule to have a safety net2, however, depending on your financial situation, your savings can vary.
Tip: Investing in a suitable life insurance policy can be a great idea, especially if you are the primary breadwinner of your family. Many new-age insurance plans help you meet time-bound goals and can create a financial cushion for you. ULIPs, unit-linked life insurance plans, have two components, one being life insurance and the other being investment, which is subject to market risks. Most ULIPS also allow partial withdrawals once the 5-year lock-in period is over and subject to other policy terms and conditions.
6. Make the most of tax benefits:
Understanding your tax liabilities is an important aspect of financial planning for entrepreneurs. Knowing the ins and outs of income tax, sales tax, GST, etc., is essential. As much as possible, keep yourself updated on all the changes in the tax regulations.
Conclusion
India is home to ⅕ of the world’s youth!1 The economy is already worth $3.5 trillion4, and the Union Budget 2025 aims to to move closer to the aspiration for a Viksit Bharat3. Attractive investment opportunities and an emerging consumer class are encouraging more and more people towards entrepreneurship. In such a scenario, the need for financial planning in entrepreneurship cannot be overstated.
Starting a business is exciting. At the same time, as a young and empowered entrepreneur, you need to set realistic goals, manage the debt, create a budget, save for emergencies and cash crunches, monitor the progress, review your strategies and understand the tax implications. It is with careful financial planning that entrepreneurs can manage their cash flow, achieve their goals, and aim for long-term success.
FAQs
1. What is financial planning for an entrepreneur?
Financial planning for entrepreneurs means checking a business’s finances, setting goals, and making a plan to achieve them. It’s key to building long-term success.
2. What are the 5 steps of financial planning?
Financial planning for entrepreneurs should have the following steps:
- Know your financial situation
- Determine your financial goals
- Create a practical plan
- Fund your plan with income, savings and investments
- Monitor your progress and review when needed.
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