The economic hardships of the pandemic and unemployment have prompted many educated people to start their own businesses as a way to survive and grow. Most of these new entrepreneurs come with no business background and do not have much support from experts.
Most MSME founders start with an idea and learn about business on the job. Often times they all make several mistakes on the way – some minor, some blunders. This is expected when the founder is young, inexperienced in business and driven to get into business because of lack of jobs or discrimination. And they just cannot afford consultants for business advice.
Here are five essential business guidelines for new venture founders:
- Make it official. Do not start any venture informally. That you can do to test your concept. Once decided, set up a private limited company or limited liability partnership to make it official. Better not to start as proprietorship or partnership from the long-term aspects. Minimal liability is the right way for any business.
Even if you are the sole employee and boss at the same time, and totally supported by your own funds, it is best to create a proper entity for tax issues as well as future benefits from MSME schemes. The earlier you do it, the better it will be for the venture.
Many professional service providers such as consultants, designers and architects think it is best not to set up an official business entity for their work. The cost of setting up a company is hardly Rs 25,000 today even if you use a chartered accountant for this work. It is a small price to pay to protect your personal wealth from any business liabilities – legal, debt or malpractice related. This doesn’t construe that every business will get into a liability sooner or later.
- Commit to learning. The best ROI (return on investment) can only come from investing in your learning. This could be in the form of networking, formal courses, or internships while building your business. While running a business some trial and error situations always occur for new issues but you cannot always resort to that or simply rely on web searches. It is often better to approach someone who has gone through similar hitches and spend some money to learn from that person. Occasionally formal courses like finance for non-finance folks, or marketing for dummies will also be very useful.
When you take a professional course from a reputed institution or trainer, you are investing upfront today for saving lots of troubles and losses later when mistakes occur. For instance, you need to know the tax implications well in order to find ways to avoid paying more taxes. Later on, you cannot do much on such issues.
Scaling up business and managing cash flow are two critical issues most MSME owners find difficult quite often. While they make good sales, their ability to collect money is quite low. There are also a whole bunch of free courses offered by various reputed universities globally that can be of help if you invest your precious time.
- Subscribe to an accounting service. Most MSME owners approach a chartered accountant for their accounting needs. They will charge them a monthly retainer depending on the workload. It may be better to invest in any good accounting software for regular updates and use a chartered accountant only for filing returns. As a new business, you are cash starved and it is best to find ways to minimise cash outflow.
There are many accounting and bookkeeping software available on subscription model these days. While a full-time graduate won’t have enough work in the early stages for entering expenses, etc, it is best to look at easier ways to manage this essential hassle. Unless you plan to use this person for administration or other work, it will not be a productive use of your funds.
If you can get this job done at a small cost, it will free up a lot of your time and resources for other more productive and pressing business issues. Basic software solutions are available for as low as Rs 1,500 per month, for instance. Some of these solutions are GST compliant too and can generate electronic invoices as well.
-Bifurcate business accounting from personal one. If for some reason you decide not to set up an official entity for your business – due to issues beyond your control such as name or delays in RoC – try to separate your personal finances from that of the business. As much as possible create a separate business account and accept receivables in that account only. Likewise, do not use personal credit cards for business expenses.
Banks will demand business documents such as certificate of registration, PAN card etc for providing a business account. The best way to overcome this is by starting a self-owned firm at the beginning till the time the LLP or private limited company is formed. If nothing works out the way you expect, open an account in another bank where you will only do business transactions. This kind of discipline will be good even otherwise.
More steps in the next few issues of Smart Growth soon.
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