Securing funding to set up an enterprise can be tough. So, typically, entrepreneurs employ savings to start their business. While this reflects their entrepreneurial commitment, it often impacts their personal finances and, in some cases, leads to severe financial strain.

If you too are looking to start a business, or have just started one, here are some personal finance lessons from established entrepreneurs based on their experience and learnings.

Avoid stretching your finances

Take the case of Aprameya Radhakrishna, Co-founder, TaxiForSure (TFS)—a taxi aggregator later acquired by Ola. Radhakrishna invested his savings of Rs 4 lakh to start the business. While on the one hand he strove hard to grow his company amid intensifying competition in the taxi aggregator business, on the other, he had to deal with the stress of managing his personal finances.

Having invested his savings in the business, repaying his education and car loan put him under considerable pressure. He even had to take a personal loan. “These loans were an added financial stress,” says Radhakrishna. Financial experts advise that given the financial insecurity that comes with starting a new business, it is best not to invest all of one’s savings into the business.

“Startup founders need savings to manage household finances till the business takes off. A fund that can manage at least a year’s worth of expenses is a must for entrepreneurs,” says Prableen Bajpai, Founder and Managing Partner, FinFix Research & Analytics.

In Pic: Aprameya Radhakrishna, 37 Founder, Vokal and TaxiForSure

Problem faced:
In the absence of a regular salary, servicing education, car and personal loans led to considerable stress.

Learning & advice:
Loans should be avoided when you are bootstrapping a business. Pending loans should be repaid in full before starting a business.


Keep your books in order

Since cash flow can be a problem during the early days of a startup, entrepreneurs often forego salaries. Geetansh Bamania, Founder, Rentomojo, who says that money management is the greatest challenge for an entrepreneur, suggests that founders convert their unpaid salary into an unsecured loan to the startup. The due amount can be claimed at the time of need.

Geetansh-Bamania

In Pic: Geetansh Bamania, 30 Founder, Rentomojo and HopeMonkey

Problem faced:
Utilised all his savings in serving the first 40 customers. Took a personal loan to meet the capital needs of his earlier business.

Learning & advice:
There should be a business plan to get clarity on funds required for the buisness. Try crowdfunding, borrowing from family and friends, etc., instead of using up all your savings or taking personal loans.

Most established entrepreneurs insist there must be a clear record of all expenses borne by the founder to fund the startup’s operational costs. Entrepreneurs should ensure that the company maintains transparent books of accounts, so the process of reclaiming expenses is smooth.

It is best to take professional help for proper record keeping, including one’s personal investments into the company. “When managing financial statements got difficult for us, we hired a financial consulting company,” says Prasoon Gupta, Founder, Sattviko.

Don’t jeopardise credit score

Exhausting credit cards to finance personal or business expenses must be avoided. Outstanding amounts on credit card can lead to expensive debt and as credit cards are personal, this debt will not show up on the startup’s balance sheet. It will, however, jeopardise the founder’s personal credit line. Defaults on credit card payments will bring down the credit score and make it difficult for the founder to avail of personal loans, should the need arise.

Bamania says that having a clear business plan can help save the founders a lot of trouble on the personal finance front. “Proper financial planning for the business gives clarity on the capital required to run it, which is very important for managing the operations within the available funds,” says Bamania. Proper business planning will prevent founders from dipping into their personal contingency funds or using other means, such as credit cards, to fund business operations.

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