Financial Planning: Prep well before starting a business

Millennials do almost ever thing differently. Right from their need to chase experiences to retiring early to explore new dimensions. Similarly, more and more millennials are eager to start their own businesses and become entrepreneurs as compared to choosing conventional career patterns. This change is good except when they are unable to channelise their strength of being a risk-taker or adventurous. They could then end up making money mistakes if they are not equipped beforehand.
The lack of proper financial planning is one of the main reasons behind their financial failure, both at the business front as well as in personal wealth creation. There are some important financial tips they can use to avoid fatal money mistakes.
First – Have a clear business plan which often gets overturned due to their passion or excitement. A well laid business plan will help them run their business successfully, by giving them the clarity about how much money they need, when and for what purposes.
Second – Have a good cash flow that works as a cushion against any financial emergency and unplanned business expenses. One should always have a minimum of six to 12 months cash flow handy at any given point of time to avoid any financial emergency.
Third – They should pay themselves. Yes, they should not forget themselves on their way to build the most successful businesses. They should remember that if their personal finances are in trouble then the same chaos will hamper the growth of their business. So, even if their business allows a little room to draw salary, they should pay themselves. This brings the stability and discipline which will help them at a later stage and will give them a clarity about how much money their company is making and the net profitability.
Fourth – Hire a good financial advisor. This often takes a backseat, but it is very important to have someone experienced guiding them at every crucial stage. Now-a-days, millennials are turning to the DIY (do it yourself) way or to a robo-advisor, specially when it comes to managing their personal money. While doing so they need to be aware know about the lack of accountability that comes with the robo-advisor. But robo-advisory will evolve with time and become more robust. Until then, choose carefully.
Fifth – Separate business from your personal money matters. You would have often seen the traditional set up in India, say a very local kirana store. For that kirana store owner, what goes in to his “galla”, that is, the drawer or the cash counter where he keeps money, becomes his own money. There is no segregation between money belonging to him and to his business. The same goes to a young start-up founder or a business of any size, any scale when the founder is unable to segregate the financial matters between personal and business.
You should manage your books of accounts in a way that there is a clear distinction between every income and expense item. In fact, managing books of accounts effectively is also one of the key to a successful entrepreneurial journey.
By following these basic principles, millennials would be able to lead a well-secured financial life and avoid the risk of not saving enough for their early retirement. They will be able to balance their life and work without getting caught up in financial emergencies.