In the months since many people have had time to review their lives, the COVID pandemic has kept us at home. People have learned new skills. Not only online courses and credits, but life skills like repairing plumbing and fixing air conditioners. Many people question the time, effort, and money it takes to get to work. The savings many people have made have taken them by surprise. Without travel, outside food and entertainment, many people have felt that they do not miss it all. And then many people have decided not to go back to work.
In some countries it has become a matter of policy discussion. The dolls have stopped; opening businesses; But people are resigning in large numbers because of concern. Not many people are looking for new jobs. They are looking to become entrepreneurs instead. Husband and wife are planning in newly found teammanship Business Enterprise. Online selling is top of their mind. No shop, no staff, no stock, but sales from people sitting at home and browsing. Seems like an interesting proposition. Let’s see how personal finance will match up with this newfound romance with entrepreneurship.
I think people start businesses for at least one of three primary reasons. At first, they think they are so good at it that they should do it themselves rather than do it for someone else. Second, they think that given the demand for the product or service, it is a good idea to do something that will generate the idea. Third, they feel that there is a lot of money to be made.
How a business establishes, grows and nurtures it will depend on what the primary driver is. And so would the personal finances of the household. Someone who is convinced that a business will make a lot of money quickly, slow sales, stock pile-up, late payments, and the like won’t be able to take the regular business events of their stride. They will become impatient with the working capital needs of the business and will make hasty decisions regarding pricing and promotions. Domestic finance will also have to suffer yo yo.
Someone who believes in the power of his skills and expertise, he needs enough capital to keep the business going. They have patience and their household finances should show similar flexibility. If they have the ability to reduce spending at home, and still have the calm and consistent demeanor that their business requires, they may be able to stay invested.
Someone who bets on demand for their product or service needs the agility to chase markets and effectively promote their product or service to see growth. They must be ready to not only find and win customers, but also to revise and rework their ideas according to market directions. His business and family need to spend their effort to continue with the optimism that he needs.
These are simple generalizations. But the intention is to ask new entrepreneurs to care enough about how their business ideas may affect their personal finances. Every businessman should believe that they will be successful. That optimism is needed to take the plunge. Starting a business venture takes time, and there are always unexpected twists and turns in that journey.
talk to any successful entrepreneur about his journey. They will tell you that after being successful, the world only sees the good decisions they make, celebrating their wisdom along the way. But in reality they have to take decisions at every turn and some prove to be good and some bad. It is through the hurt of bad decisions that a business learns and gets better as it finds its success.
Therefore, a business venture will struggle through costs, losses, expenses and investments before it is established. In this period of struggle, the finances of the house will also have to face a period of stress. While everyone understands that a fixed salary won’t be relaxing, the rewards of a bountiful bag of money will take time to arrive. Hence cautionary notes from a writer who would be accused of being conservative and cautious.
First, don’t romanticize the post-pandemic new world. Over time things will reverse, and we are all creatures of habit that will go back to what we were doing. We may be wiser with this experience, but we still don’t know how much of it will remain as time goes on. Don’t mistake the changes from this shock as some sort of trend reversal. Allow your business plan for this possibility as well.
Second, don’t be tempted to turn most of your assets or worse, all of your money into your business idea. As long as I stake it, I can’t make it, said a friend. You are in charge of your money when you deploy it, but the concentration risk of your wealth contained in one asset, even if it is your most precious asset, is high. Keep enough to go back if necessary.
Third, provide for Income and your household expenses, for a reasonable amount of time. Three years can be a good ballpark. Enough to grow your business and make it worth it. If you don’t have the funds to provide it, let an earning member keep your job. They can leave and come in later when the business starts covering the costs and making money. The family will remain untouched by that income till then.
Fourth, make sure you don’t make isolation your buzzword, even if the pandemic has made it a virtue. Things happen in the real world as a community comes to rally around you – your friends, co-workers, relatives, co-workers, well-wishers. Make sure you continue to invest in your relationships and network. If you cling to an idea that isn’t working, they will not only seek you out, but provide valuable insight. They may be able to offer alternatives if needed.
If entrepreneurship is your calling, dial in. But don’t be deceived.
(The author is the chairperson of the Center for Investment Education and Learning)