Entrepreneurship among women is common. According to data issued by the Department for Promotion of Industry and Internal Trade (DPIIT) in June 2021, India has over 50,000 startups, with at least 45 percent being women entrepreneurs. Mital Salia, 43, started Khel Khel Mein, an organisation providing game-based tools for children to adults in 2013. Manya Singh, 36, co-founder of weddingplz.com, wedding vendor search portal, is another addition to the ever-growing list of women entrepreneurs. She started her entrepreneurial journey in 2011.
Just how do they manage their businesses and personal finances at the same time?
Planning is the key
Salia, who also calls herself a game therapist, says that she didn’t understand the importance of finance until 2021 when she needed the money for expansion. Experts say that entrepreneurs, initially, finance their businesses with their own savings, often without drawing a salary. The cash flow is seasonal and uneven in some businesses, especially those businesses that are related to beauty products, personal care and lifestyle, such as Singh’s wedding planner portal.
Singh too had to rely on a bank loan to sail through the initial days. A sound financial plan made in advance goes a long way in meeting high capital requirements in the initial months or years of setting up a business venture.
Have a contingency plan in place
COVID-19 pandemic has showed the importance of having the emergency corpus. For instance, during the first wave of COVID-19 pandemic, Salia had to dip into her savings for regular expenses as there was no emergency corpus built over the years. “Until COVID-19 pandemic strike, I didn’t give importance of building an emergency corpus for myself and business. I was relying on my spouse’s savings for any uncertainty or slowdown in the business,” says Salia. Similarly, Singh didn’t give importance to an emergency corpus over the years.
“If you've just started off, the focus should be on building an emergency corpus for yourself. A woman who's running her own business should have at least two years of emergency corpus,” says Prableen Bajpai, Founder, FinFix Research & Analytics.
“Build the emergency corpus by investing in recurring deposits of banks, liquid funds of mutual funds by setting aside small disposable amounts regularly,” adds Bhakti Rasal, financial planner and insurance advisor.
Have an adequate life and health insurance cover
Singh and Salia, both have term insurance policy and health insurance policies in place. Salia prefers increasing the sum assure in health and life insurance policies every three years after reviewing.
“While taking a life insurance, carefully look at who all depends on your income. Based on that, do an insurance needs analysis and then purchase the term insurance policy,” Renu Maheshwari, SEBI Registered Investment Advisor, CEO and Principal Advisor at Finscholarz. She adds, if there are no dependents or liabilities upfront, avoid term life insurance.
Women entrepreneurs should consider key-person insurance. It is a life insurance policy that a company should purchase for an owner. Keyman insurance comes in handy, particularly for family businesses that highly depend on a few individuals. It helps ensure that the business can absorb the financial strain of an untimely death and continue sustainably.
“In case of a claim because of the uncertain demise of the policyholder, the insurance company pays the life cover to the company,” says Bajpai. This policy protects businesses against the loss of profits if an owner becomes terminally or critically ill, or due to uncertain demise. Key person insurance can help keep the business trading and pay-off business liabilities linked with the business owner after demise.
Manage your own investments
Millennial women entrepreneurs are seen to be more independent comparatively when it comes to taking their financial decisions. Singh takes her own decisions. She invests in exchange-traded funds (ETFs) and long-term bonds.
Others don’t mind consulting financial advisors. But Maheshwari, laments that a lot of middle-age women entrepreneurs still rely on male family members for their financial decisions. Mital, too, relies on spouse recommendations for investments as he is a finance professional.
Rasal has a few handy tips. Plan for the short-term and long-term business goals, stay informed about the credit lines, loans available for women to start businesses. Do not forget to plan for your retirement. Invest in mutual funds through systematic investment plans (SIPs).
Separate your personal and business financials
Financial planners say that it’s crucial to keep the two buckets separate. “Every month, pay yourself a salary from the business income for personal expenses and financial goals,” says Bajpai. She adds that it is the only way to distinguish between business and personal income. There are several women entrepreneurs with financials messed up, as they don’t maintain separate books of accounts.Women entrepreneurs should have an individual financial plan with personal and business goals. Joint finances for common goals like kids' education, buying a home, and so on, can be made keeping the spouse’s contribution in mind.