When it comes to financial planning and management, the needs of entrepreneurs tend to be pretty different from that of the employees. Entrepreneurs lack steady predictable incomes the employees, and usually make quite distinctive spending decisions as well. To ensure a financially stable future, hence business owners should properly determine and prioritize their short, medium, and long term objectives and needs, and plan accordingly. Kavan Choksi points out that financial planning is especially important as one embarks on the entrepreneurial journey, to make sure that one is able to reap its optimal advantages.
Kavan Choksi mentions certain financial plan planning tips that can be quite helpful for entrepreneurs
It is easy to neglect personal finances while being more focused on growing and nurturing a business. However, this mistake can become a huge problem later on. Hence, entrepreneurs must create a robust financial plan that helps them to make sure that their financial stability is not compromised in the future.
- Grow the business: A financial plan for the business would show where it currently is, as well as forecast the financial goals of where one would want to take their business. People can grow their business as large as they want, as long as they stay persistent. Business growth would add more value to the venture. Down the line, entrepreneurs can then sell off the business for good profit and use its proceeds as a retirement plan.
- Protect against risks: An entrepreneur must have proper risk management solutions in place for their business premises and stock. However, in addition to this, they also must invest in insurance for themselves. If the entrepreneur suffers a major illness or accident then they would need money for the necessary treatment and to get their life back on track. Hence, investing in personal insurance is as vital for business owners as business insurance.
- Plan the exit in advance: As one works towards establishing their venture, the day they have to exit their business would seem to be a long way off. However, planning for this exit early on can help them to reap benefits down the line. If one has plans to sell off their business in the future, then they should out the “magic number” for it early on. This amount implies to how much money they shall need from a sale in order to achieve the lifestyle they want. One needs to work out how much their future lifestyle might cost, and if the potential proceeds from a sale, alongside their investments and savings would be enough to cover it.
- Have an emergency fund: All business owners should have an emergency fund for unexpected events like cash shortages or a downturn in the economy. This would not only help them to meet sudden expenses that may crop up, but also see to it that they stay in full control of their business.
Kavan Choksi stresses on the fact that even though an entrepreneur puts major emphasis on making their business as best it can be, they should invest in other assets like equities, bonds, and cash. Doing so would be useful in cushioning any blow to their-term finances in case their business does not perform quite as well as they had hoped.