Financial preparedness is of utmost importance before you shift from a job to entrepreneurship. In this article, we discuss some important aspects like contingency fund, debt management, etc. that you should be aware of.
Job and business life are quite diverse when it comes to managing your finances. Job not only ensures stability in terms of income, taxes, growth, etc., but also helps in planning career objectives in a steady manner. Whereas, if you are an entrepreneur, the stability factor may or may not work like a job. You can achieve a phenomenal growth in your income if your business idea clicks well. So, financial preparedness is of utmost importance before you shift from a job to entrepreneurship.
In this article, we discuss how to ensure financial readiness before you move from job to become an entrepreneur.
Perform Financial Evaluation And Plan Very Well
It is important that before you shift from a job to an entrepreneurship, you should know what changes it would bring in your financial condition. So, you should compare your income and growth prospects in the job and compare it with your expected income and growth from entrepreneurship. Assess all the risk and exercise due diligence to avoid chances of obstacles in doing the business.
You should be ready with an alternative income source to meet your regular expenses in the initial phase after starting the business. Before you initiate a business, you should start saving money to establish the planned business.
Be Ready With Big Contingency Fund
You cannot be 100% sure that the new business will be successful from the first day you start. So, you should be ready with a good contingency fund to pay for your regular expenses such as EMIs, rents, Credit Card bills and day to day expenses. Normally, contingency fund for 6 to 8 months is sufficient, but you can maintain a fund beyond this too. It’ll help you to give more time to establish your business.
Debt Plays A Significant Role
You should check your capacity to borrow money from the financial institutions and banks before you step into the business world. Debt plays an important role in allowing you sufficient liquidity when doing the business. So, check your Credit Score and also ascertain how much loan you would be able to get based on your personal capacity. After starting the business, you may need financial support such as cash-credit facility, term loan, bank guarantee, etc. If your debt profile is clean, then you’ll easily get access to all the banking products.
Important Financial Aspects To Become A Successful Entrepreneur
The transition from the job to entrepreneurship also has a significant impact on your taxes. You would be required to maintain proper records of all your expenses that you may claim later on. You should be aware of indirect and direct tax impact on your business.
It would be wise to make a team for your business before you leave the job as you won’t get time to learn the basic aspects. You should study the market, meet your target customers and have a marketing strategy ready before you leave your job.
Along with all this, you should know your job’s terms and conditions related to notice period and other aspects to avoid legal disputes with your employer. You should inform your company about your intention to leave the job within adequate time and settle all the issue.
You must also get your life adequately insured. Get a Health Policy to mitigate the related risk when you step into a business life. Your business too would require appropriate insurance policy against risks such as fire, theft, flood, etc. Spare lots of time in understanding about the business that you are planning to do. Success and failure are part of the business, you must be ready to take the risk. If your business plan is right, execution is correct and you practice strict financial discipline, then you are on the right path towards making your business successful!