Question: What do you do for a living?
Answer: I am an ‘entrepreneur’.
Conclusion: So you are Unemployed!
Negation and counter answer: NO! I am an entrepreneur!!
This epic conversation had held between Sean Parker and his
girlfriend in the movie #The Social Network.
Many startup owners can identify with the conversation as it
is difficult to ignore social backlash when you break the norms, particularly
when you start your journey as an entrepreneur.
Being a jobseeker is a norm. Our education systems are
inclined to provide the society with the educated seekers and hardly the
creators. When you take risk and go against the flow doubt surrounds you, be it
doubts by the family, friends or society but also the doubts generated from
within! What if you fail? Which happens more often than expected. And no matter
how evolved a society becomes, Failures remain unaccepted!
But for the brave hearts
called Entrepreneurs…So be it! It is
their conviction and belief in self and their ideas, which motivates them to ignore
refuge of getting committed monetary benefits and taking defined risk.
Non committed monetary benefits and undefined risk is what
defines an Startup! These are two very important reasons why many potential
innovators and initiators are never able to muster the courage to start a
startup. Often in such cases the pragmatic individual self takes over the
dreamer self. Everyone needs some
committed income to take care of his basic needs. There are families to take
care of, kids to be sent to school, parents to be looked after and a lifestyle
to be maintained. Some committed income stream is needed for all of them. When
and whenever such needs start bothering you, your risk taking capability is
compromised.
So, Are the individuals who start their ventures immune to
such needs? Is their dreamer self too strong to be ignored? Or have they
figured out the answers to the above needs? Not surprising at all…the answer is
obviously NO! They are bound to face these problems like everyone else…and the
problems arise when they choose to or are forced to ignore these needs.
We cannot deny that startups are risky business. And no
matter how positive and hopeful we may be willing to sound, according to
several surveys, nine out of ten startups fail!
They may fail for various reasons and the failure of the
venture severely affects their founders and their families. The impact could be
both psychological and monetary.
So, should a person be afraid of the above scenario and
refrain from founding a startup? Or is there a possibility of keeping your head
above water in all situations? In both personal and professional aspects of an
individual, one common factor is Finances…Money! Logically if one of the two
aspects is taken care of, the battle is half won!
Where in professional aspects, finance is driven by mostly
outside factors. In personal aspects, finance is driven by mostly inside
factors. Here are some actions items to be take care of on personal finance
front which can help ease the burden.
1. Get your
health checkup done
When you do not carry name of big
brands to support you, getting even one single meeting from your prospective
client or investor can be frustrating. Frustrations may loom large when you
have employees dependent upon you. Journey in a startup can lead to emotional and
physical upheavals when you need to work 7 days a week without being able to
take a break.
It is hence important to know your
physical limitation and condition beforehand. You should get full health checkup
done before starting anything new. Some health conditions like high blood
pressure may need immediate attention to avoid any consequent health ailments.
A middle aged person prone to heart
diseases may want to have less aggressive business targets than a fresh out of
college youngster with no such ailment.
2. Pay
yourself as per Market standards
The view taken while founding or
joining a startup is ‘high risk, high gain’. Many a times, the founders believe
in trading ‘low salary with higher stake in the company’. In the hope of
selling their startup or liquidating their stocks at very high prices later. The
reality can be entirely opposite or the dream of high rewards may come true
later than you thought.
It is hence advisable to pay yourself
as per market standards. This will save you from any monetary frustrations in
the meanwhile. And also your ability to maintain your current lifestyle will
elongate your ability to be patient with your venture.
A person who is the sole breadwinner
of the family, may need regular income more than a person whose spouse is
earning.
3. Prepare
your family for the change
Family is
considered to be the first support system. An enthusiastic and emotional appeal
to your parents or your spouse can get them onboard with your ideas. But the
fact remains that your family will also face the challenges along with you.
Your long working hours, lesser income and constant worry about making your
startup work will leave them with an altered lifestyle and much lesser mind
share from you than they are used to.
Thereby
it becomes utmost important to talk to everyone in the family including kids
with an open mind. You must appreciate that you may be motivated by your faith
in your dream but they may not have any such motivation. Their personal dreams
can be different than yours. You can get their support only if you are able to
address their concerns well. The exercise is as important as getting an
investor onboard.
A person
with teenage kids may need to prepare them up for lesser time from papa/mummy
or deferred purchases of latest gadgets than a person with grown up kids, who
may understand the challenge better.
4. Get
sufficient insurance
Emergencies
happen and take us by surprise. Being an entrepreneur will not change the fact that
being a human being we are prone to accidents and fragility of life. Medical emergencies
are not only emotional and physical setback but are also a financial set back.
It is
imperative that you have sufficient risk mitigation plan in place. Depending
upon your needs, you should take life insurance, medical insurance, accidental
and disability insurance, critical illness insurance, home insurance, travel
insurance etc. Also you may consider taking professional liability insurance or
worker’s compensation insurance keeping the nature of your startup in mind.
A person
who is the only earner in the family will need higher life insurance coverage
than a person who has no dependents and thereby do not need life insurance.
5. Check if
you have enough savings
Even if a startup has great potential
and can be a great investment for the potential investor and the founder, the
money does not come easy. Any potential investor show interest in a startup
when it is a running model (even if not profitable). It is very challenging to
get funded for just an idea. To showcase a working model, initially you may be
planning to use your own savings or borrow money in personal capacity. It
usually takes couple of years before getting funds from an interested investor.
Failing to plan for the scenario can get you in money troubles on personal front
and you may unwillingly resort to work that is not aligned with your philosophy
or work ethics.
Hence it becomes most important to
plan and budget your expenditure in due course. You may be willing to compromise
on your lifestyle and bring down discretionary expenditure but it may not be possible
to bring down non-discretionary expenditure like house maintenance, school fees
and monthly grocery etc. At least budget for 3-4 years of expenses from your
savings along with some money to be kept aside for emergencies.
A person living in a rented apartment
will have to the bear the continuous increase in rent than a person living in
its own house.
6. Pay off all
loans
Loans are
the monetary liability which you have to pay in any case. Change in income
stream will not change the constant flow of EMIs. And they will be a constant
burden on you and thereby will dent your courage to take risk of starting
something of your own. Also, if you default, then a bad credit score will
reflect badly. It may indicate your inability to manage finances well.
Therefore
the best way is to clear off all your loans before taking a plunge into startup
world. You may have home loan, car loan, personal loan or credit card debt. You
should first and foremost use your savings to pay them off before committing any
money for your professional venture.
A
person who owns the house with all debt cleared off will have more mental peace
than a person who has the constant burden of paying EMIs.
7. Separate your
personal assets and business funds
Startups
are found on conviction. This conviction is the source of hope and the hope
gives encouragement. The encouragement at times can be overwhelming. It can
convince you to not only commit your time and attention but also your personal
assets to the venture. If your conviction suffers a set back then you may be forced
to liquidate your venture or declare bankruptcy. In that case if you have
committed your own personal assets or parent’s assets, they will be attached during
the process to pay off professional liabilities like employee’s salaries.
To
avoid any such scenario, keep your personal assets and business funds separate.
Your personal assets should only be used for your personal goals like education,
marriage, retirement income for parents etc. as you may have originally
planned.
A
person with responsibility of aging parents will be more comfortable if there
are enough funds and assets to take care of the retirement needs of his parents
than a person who has done otherwise.
8. Keep your
exit options ready
Exits can
be happy or sad. An exit from your venture may be for several reasons. The idea
could not take off as planned, the venture did not get enough funds, the investors
could not see enough value, the co-founders failed to align or your enthusiasm
itself has died to continue the venture. In any case saying good bye can be
emotionally and financially challenging. It can be a happy exit if you have at
least made money from the venture but it can be a sad exit if you could not
make money you hoped for.
Hence
it is important to understand and explore the exit options as well. Getting a
job can be one quick action which can get you stable income stream while
exploring other options like starting all over again. Thus it becomes useful to
keep in touch with the current job market and keep your skills updated.
The
youngsters from the colleges that offer deferred placements are more inclined
to take risk of starting a startup than the youngsters who do not have any such
assurance.
To sum
it up, Your ‘Comprehensive Financial Plan’ is as important as your ‘Business
Plan’.
You
may even like to showcase it to your potential investors to ensure them about
your money management skills.
It is a
battle ‘half won’ and the other ‘half’ will be won by your ‘Believe in yourself’!
