Entrepreneurs should plan their investments by keeping in mind the risks involved, cash-flow requirements, investment horizon, and/or any other client-specific requirement(s). In the early stages of running a business, there’s considerable risk involved for the budding entrepreneurs, which may or may not be enough to bear the ongoing expenses of the business. This may lead to a withdrawal of money from their investment portfolio to sustain their requirements.
Karolina/Pexels | Manage expenses to maintain liquidity to cover the running expense of business
How To Manage Expenses?
It’s important to keep some money in your company’s account so that you can use it in tough times. Entrepreneurs should keep 2-3 year cash-flow requirements in debt-oriented strategies to avoid being hit by market volatility. This way your market instability will not affect your cash-flow payouts as you’ll have enough money in your funds to manage expenses. Moreover, it’s also advisable to keep some emergency funds for health-related issues. A much better approach would be to have health insurance or term life insurance for any emergency that may happen with you or a family member.
Towfiqu/Pexels | Budding entrepreneurs should save some funds for emergency
How To Manage Cash-Flow?
Businesses need cash to ensure their smooth functioning. Therefore, it’s essential to maintain sufficient liquidity. Money can be kept in the form of liquid debt instruments to be used whenever required. It usually takes 2 to 3 years for businesses to reach their break-even point. Before reaching that point, entrepreneurs may have to fund the business with their personal savings or loans from friends and/or family. At earlier stages, they should not have much exposure to close-ended funds as its important to maintain liquidity
Rodnae/Pexels | It's important to have separate funds for personal investment to avoid the risk
Once the business is established and the cash flow starts rolling in, it’s recommended to keep company investments separate from personal investments as the company is a different entity now. Entrepreneurs often end up plowing all their investment back into the company in the hope of a higher rate of equity. A budding entrepreneur should always have a separate investment portfolio even if their company gives a better return. One should be cognizant of the fact that the company can face problems at any point in time. Hence, it’s crucial to keep a separate investment portfolio.
