Micro, Small and Medium Enterprises (MSMEs) are getting due recognition in recent years. They were and are coming to an end after demonetisation, GST implementation and the covid pandemic. We hear reports of many businesses closing and some flourishing following these challenges across states and industries. MSMEs face specific challenges primarily on critical fronts such as capital, talent, infrastructure, professionalism and regulatory and statutory constraints.

After all, entrepreneurship is a lonely and difficult journey. The mortality rate in MSMEs is high due to the challenges mentioned above. Post covid, access to capital and cost of capital has become easier for entrepreneurs. E-commerce optimization has made them relevant in the market and increased their business. Digital and social media marketing tools helped them reach a wider and target audience without geographic restrictions, besides online B2B and B2C platforms helped them gain new customers with a cash and carry model. This has resulted in a shorter working capital cycle.

Some business consultants I interact with suggest that MSMEs are unwilling to hire professional talent from outside and partially share management control. Most of the MSMEs do not make long term vision and subsequent goal setting which leads to low growth or premature death of the enterprise. Plan B is also missing in most cases.

To manage the finances of entrepreneurs, the challenge is more personal in nature rather than ecosystem. A good balance and dynamic approach is the need of the hour.

Most entrepreneurs do not differentiate between business capital and personal capital. That mindset is the key to creating personal wealth that can be passed on to the next generation.

Most of the time business assets are created but personal assets are quite rare. I know many traditional traders and manufacturers who do not take money from the business in building personal wealth. While this approach may be correct, the future of the family is tied to the success of the enterprise. As we know business and industry will operate in cycles and timing may not always be good. When massive funds are required on the personal front, entrepreneurs have to step out of business or borrow from the market. Such a situation can be avoided if the entrepreneur takes money off the table to create personal wealth. Personal possessions can help reduce anxiety and insecurities among family members. The typical argument that the entrepreneur gives is “I make more money in the business than in the investment”. MSMEs who are able to generate additional surplus in business take the informal lending route with higher interest rates, “he knows me so money is safe”.

Entrepreneurs or technocrats, as the case may be, need to understand that managing business and finance are two different things and the first is better which is better. As the famous saying goes, don’t put all the eggs in one basket.

MSME owners must move towards an open mind approach, evaluate the best strategy to separate business money and personal wealth! Just as an entrepreneur creates a tangible gap in business, think about creating a gap for the family as well. Those who are sole-entrepreneurs or do not have family members to handle the business should consider this idea immediately.

Last thing to know- To generate income from business, you must have land, labor and also time but to generate investment income, you only need capital, investment will work hard to generate income for you , not you.

Views are personal: The author is Bhavesh Damania, Founder – Wisdom Edge Investments (AMFI Registered Mutual Fund Distributor).

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