How Should Entrepreneurs Plan their Finances and Build a Nest-egg of Savings?

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Businesspeople have the luxury of working at their will but at the same time they need to face the perils of not having a steady income. This means planning for the future could be tricky. Here are some ways business owners can manage their money.

Divide your finances

One of the ways experienced businesspeople manage their money is by ensuring that they take their share of salary or money from the business. This is what an experienced business owners do. They make sure that every penny counts from the beginning and even if they take only a nominal salary, they insist that every owner deserves it for the time and effort they put in. In the long run, the small salary you take could lead to big savings and could well be the funds that could come to the rescue when the business is not doing well.

Apart from not taking the salary, the risky attitude of not saving money could also affect the dependants or the family of the business owner — especially, in high-risk businesses like advertising and media. For those who are in a field where generating returns cannot happen on a monthly basis, it is important to save money or the family or the dependants could struggle to make ends meet if the business is not doing well.

Insurance is a must

Planning for a business is good but without a safety plan it is a disaster waiting to happen. First time entrepreneur Shankar was already in his 30s and was working for a private firm. However, the entrepreneur bug bit him and he suddenly wanted to jump in to the business of engineering machinery. He planned everything and also saved enough money. He quit his job and started his business. His wife is also working and he also gets a small pension to keep the money flowing. He used his provident fund for starting his first business. However, Shankar was sure that the income must be flowing at all costs and, therefore, having an insurance policy is very important to him.

Shankar already had a life insurance policy but that would not be sufficient to ensure the safety of his finances under all circumstances. He, therefore, also brought a health insurance policy. After life insurance, the most sought after is the medical insurance policy. Simply, because anybody can fall ill or get hospitalized anytime and we all know what one accident or a heart operation can cost. In fact, health expenses are one of the few things that cannot be compromised. Therefore, it is always good to have an insurance policy that covers your health expenses. Make sure the health insurance policy is adequate and cover all your dependants and most importantly you are aware of all the terms and conditions.

Apart from having an insurance policy, Shankar has also made some wise investments. On the personal front, he is taking the advice of a financial advisor and investing in mutual funds. His business does not give him enough time to pick the funds and, therefore, he pays a small fee to the advisor for managing his portfolio.

Shankar is also aware of the inconsistencies in business and is planning to generate a monthly income by leasing his machines. This means he can generate money not just by waiting for someone to buy the engineering machines but the leasing option ensures that there are more customers who want to use his machines for a nominal fee.

Start off early

An early start not only gives you the advantage of being the first player but also gives you more time to bounce back in case of any problems. In case of Sagar, the co-founder of a start-up business, he started his preparation for running a business nearly 10 years back which has helped him save the money for his family expenses.

The savings he made in mutual funds through systematic investment plan in the last 10 years has helped see him through the first few years of his business when he did not generate any returns.

Apart from the savings, his family also reduced their expenses. He ensured that he kept track of all the expenses. He kept a budget for every-day spending, logistics, procurement and even entertainment. This has also helped them cut unwanted expenses like going for long vacations, shopping luxury items or spending money on extravagant items. These simple methods fetched him close to 20 percent savings in his home expenses.

He also paid off his existing home loans by selling a small property and has ensured that he does not have any other loans. This has enabled him to save money and invest better. With age on his side, he has allocated 60 percent of his investments into equities and the remaining 40 percent into debts. He also ensures that he regularly checks on his investments and consults his financial advisor on the same.

Even when the business is not doing well, Sagar ensures that he continues investing some part of his income in the PPF account. He is assured that, in the long run, the compounding gains will give him sizeable returns. Apart from this he also purchased life insurance and health insurance.

Even if the business is not doing well for a period of two years, Sagar is prepared for the worst by having alternative options. He regularly takes freelance assignments to ensure there he always has an income.

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How Should Entrepreneurs Plan their Finances and Build a Nest-egg of Savings?


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Sanjit Agarwal, a financial adviser by profession, holds a rich experience of around six years in banking and insurance sector. He loves to write and share reviews, updates, tips, case studies and more on finance industry. Currently, he is giving his services to BankBazaar as financial adviser – health insurance.

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