While we all love running a business, there are days that make it hard for us. And believe it or not, financial stress is the most prominent reason for it. I started out my first company back in 2012 and quickly ran out of cash. To get over it, I had to seek a loan from a family member (which fortunately worked out, in that I paid it off and it didn’t damage our relationship).
However, I’ve always been an avid student. I used to love learning about personal financial responsibility and becoming an entrepreneur who faced an uncertain financial destiny, coupled with going into debt, all of which, left me stressed. To get over this stress, I decided to take finances seriously and organize them up. To build this process, I employed a few rules of thumb, which in the post, I’ll be sharing with you all. Here’s a list of 4 stress-relieving financial tips for entrepreneurs,
Don’t Rely on Credit Card Debt
Racking up credit card debt to fuel your entrepreneurial spirit is not an advisable thing to do. Many entrepreneurial success stories espouse leveraging yourself to get a business off the ground at its initial stage. I personally disagree with this. Primarily, because of only one problem. It is that for every over-leveraged entrepreneurial success story that we read, there are nine out there who didn’t succeed. That’s purely not a good stats to follow and believe me, those simply don’t make good stories.
Credit card debts can cause serious harm to both your business and your personal financial goals. The basic idea of continuing to roll over credit card debt to no-interest credit cards will work only for so long. If you plan to build something great (which deliver value to others) in your life. You must try to save up for the entrepreneurial run before you start, and utilize sheer perspiration to get your idea off the ground.
Build an Emergency Reserve
A recent study showed that nearly 67 per cent of Indians has no emergency savings. This means that an unexpected bill like an auto expense or medical emergency could leave that same 67 per cent in a distressed financial situation. To escape from this situation then, they look out for loans, which doesn’t help, and in turn, adds onto the stress level.
For an entrepreneur, this is the last thing you should afford in your lifestyle. When your financial situation is put at risk (at any point in your entrepreneurial journey), so too is your company. It really doesn’t matter whether you are currently navigating your entrepreneurial waters or planning to take the leap in the future. Also, do make sure that you build up your personal emergency reserves.
I personally suggest at least six month’s worth of expenses in your emergency fund. This would be in cash at your bank, in a savings account, a fixed deposit that you reach out to in case of an emergency. So, if your monthly expenses are $1,000, then I would suggest having at least $3,000 to $8,000 in your emergency reserve funds.
Live by the Guideline of ‘TSL’: Taxes, Savings, Lifestyle
I personally follow the rule-of-thumb called TSL: taxes, savings, lifestyle. This is a budgeting tool that is amazing if well executed. TSL advises that business owners and entrepreneurs to put 30 per cent of their gross income toward taxes, 20 per cent toward savings and 50 towards building a better lifestyle.
These percentages can be altered a little bit to help you stay focused on building your company. And entrepreneurs should not lose focus on their personal finances as in the moment of need, they’ll be required. That 20 per cent for savings, for instance, could be thought of like money to go towards the expansion of the business.
Another area of flexibility: If you can sacrifice a bit of your lifestyle for your entrepreneurial drive, then you can reduce some from the 50 per cent life budget. And further, put it toward building the future of your company. Further, it expands to say that if you are able to stay within these guidelines, you should be able to keep yourself from racking up credit card debt, as well. Being financially aware and secure is both important and necessary for any entrepreneur.
Be Financially Organized
It is very important to get your personal financial situation, as much as your company’s, organized. Also, you need to know where all of your money is and what is it doing there. This way, you can stay focused on expanding your business growth while removing the stress of keeping up with your personal finances intact. Further, I’ll suggest you to first make sure that you centrally locate your accounts, using an aggregation platform, like Wela. Wela provides a centralized location from which users can link all of their bank accounts and have one place to track personal investments and banking, which all is what every entrepreneur with financial goals require the most.
Lastly, I recommend consolidating your old 401ks if you had any prior to taking the entrepreneurial leap. I personally don’t recommend to switch jobs throughout your career, and this means you can have multiple 401k plans. Before forgetting about this money, roll out your old 401ks into a single IRA and then, plan accordingly. This makes keeping up with one’s money simpler, effective and efficient. And further, it can also be helpful from a cost standpoint.
Don’t Spend Too Much on THE BIG NAMES
As an entrepreneur, you should realize to not spend so much money on going with brands without focusing on its return on investment early on in their business career. I know, this sounds like a bit obvious formula. For instance, a simple $40 shoe can have the same size and deliver the same purpose as to the one you buy from Adidas showroom. You just need to see what problem it solves for you.
In business as well, you can employ the use of technology. But why waste your hard-earned money on gaining those fancy tags of “artificial intelligent product” while a simple excel could solve the problem for you. As time progresses, you’ll find that many of these expenditures are ROI negative.
Many business owners lose their hard-earned money because of irrelevant or bad marketing bets they make. When they should have been more careful to watch what was working and what wasn’t for their business. Small business owners should pay attention to their company’s ROI at every stage, and not just during the time of the financial year closing. You need to know exactly where the money you spend is going and how that particular investment is paying off.
The Bottom Line
In the end, I’d like to say that you need to be realistic with your burn rates all the time. They matter the most when you plan for anything in your life.
- Keep an eye on your monthly expenditure to understand if you are within or outside of the expectations of your burn rate. This way, you can easily identify agendas with expenditure before even having to make a drastic decision within a short period of time.
- If you estimate that the burn rate for your company is going to be X, bump it up by 20 per cent when planning and modelling your business plan.
While getting your finances in order can be an intimidating task. You need to consider implementing these tips one at a time and employ the use of stress-free days ahead as your only motivation!