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27 Jul
  • Editorial Team
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“Many people dream about being an entrepreneur, starting their own business, working for themselves, and living the good life. Very few, however, will actually take the plunge and put everything they've got into being their own boss,” said Fabrizio Moreira, the famous politician and businessman.

So, first of all, congratulations if you have decided to be an entrepreneur and your own boss. It’s a big step to take but there’s nothing like chasing a dream. Now, it’s safe to believe that by now you are mentally prepared to be an entrepreneur after having spoken to industry experts for insights or having read dozens of business books. While all this is necessary, the common mistake most young professionals dreaming to build their own business empire commit is that, they focus too much on the dos and ignore the don’ts. Passion and courage are necessary traits but without caution, all progress can come to a halt.

So, here are few points to help you avoid the financial mistakes that may have wrecked many businesses.      

Financial tips for setting up a new business:

  1. Diversification of funds

As they say – “don’t put all your eggs in the same basket”. Investing all funds in one business can lead to earth-shattering losses, if the business idea flops. No matter how accurate your idea is, you need to respect the element of risk in business and refrain from putting all your money in one sector. The more prudent call is to invest in diverse portfolios. Diversifying your funds will help reduce the risk and yield better returns.

  1. Demarcating Personal and Business expenses

The moment you start your own business, create two accounts – one strictly for business dealings and the other to run your personal expenses and make a point to never take money from one for the other purpose except for transferring a fixed amount from business to personal as your own salary (Yes, that's important). It helps in understanding the cash flow and help you in easier calculations at the end of the month. Also it’s equally important to track your expenses on daily or weekly basis for a better understanding of income, expenditure, tax calculations etc., also, if you think maintaining a diary is a difficult job then don’t worry, you have many softwares available in the market to help you with the same.       

  1. Emergency Cash Cushion 

Most businesses fail not because they don't have good ideas but because they run out of cash, It’s important to create a strong financial foundation. So don’t quit your job in the excitement of your innovative idea until you have saved money for next 6 months. Forget the salary, without the job, you will also lose out on the perks - health insurance, subsidized lunch, parking space, movie coupons etc. And those extra expenses will now be your sole responsibility. The emergency backup plan will help you in difficult times. So, basically hope for the best but more importantly, prepare for the worst.
 

  1. Low Fixed Expenses 
    Fixed expenses are those costs that don’t fluctuate much with rise or dip in production level. These are expenses like house rent, insurances, subscriptions, salaries, advertising etc. And it’s a common mistake that entrepreneurs make – going for a flashy office to make a statement only to realize later that it’s outweighing the benefits. Keep the fixed expenses to the minimum so that the money can be utilised for other business activities

  2. Insure your Business

Businesses are full of uncertainties and hurdles and it’s not wise to jump and start a business without an insurance cover. It takes one wrong step to bring the whole business down. Insurance plans give you the cushion. A variety of insurance plans exist for entrepreneurs such as:

a. Property Insurance for small business and shops: If you own a shop, factory or an office space, you should consider buying this policy since it provides protection for the property and the interests of the business owner in case there is fire, burglary, accident, machinery breakdown etc

b. Auto insurance: If your company owns vehicles, then auto insurance is a must since it will provide protection in case of damage and collisions. 

c. Liability insurance: Every business, even home-based ones, needs to have this one to protect itself against risks. This covers your legal liability towards a third party in case of accidental deaths, injuries or bodily harm or damage to property.
 

There are other insurances that you can consider like the fire insurance, Directors & officers liability insurance, Contractor’s all-risk insurance, plant and machinery insurance, shop owners insurance, burglary insurance, group life insurance etc.

Be honest with your investors, set and achieve measurable goals within a deadline, look after your employees and not to forget, avoid the above-mentioned situations for a better shot at success. Being smart with your money choices from beginning will pay off in the long run!

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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