Entrepreneurs' guide to managing finance
Ten Simple Principles for Entrepreneurs to be able to successfully manage their finance. It is useful for entrepreneurs. Prepared by Dr. Trilok Kumar Jain, Dean, Suresh Gyan Vihar University, Jaipur, Rajasthan, India. It is also useful for MBA, CA, CS, ICWA, FRM, MA, MCom, PhD, Law, BBA students who wish to become entrepreneurs ultimate.
1.2013 ENTREPRENEURS' GUIDE TO MANAGING FINANCEDr. Trilok Kumar Jain Dean, ISBM, Suresh Gyan Vihar University Jaipur www.gyanvihar.org 11/29/20132. ENTREPRENEURS' GUIDE TO MANAGING FINANCEby : Dr. Trilok Kumar Jain Dean, ISBM, Suresh Gyan Vihar University, Jaipur, India email@example.com Mobile : 9414430763 Editor of books on: 1. Strategic Financial Management, 2. Strategic Management, 3. Management of Banks and Financial Institutitons. (Deep and Deep Publications, New Delhi)Entrepreneurs Guide to Managing FinancePage 2 3. for whom? Are you an entrepreneur? - this will help you thow who have become entrepreneurs those who aspire to be entrepreneurs those who aspire to train entrepreneurs thow who aspire to support entrepreneursIntroduction finance is the backbone of entrepreneurship. Every successful entrepreneur has to become an expert of finance. He must know how to manage money. He must generate greater return on investment than any other available alternative. He must be able to secure quick payments from debtors and must be able to create a really positive image on creditors. He must be able to present the company before investors as ideal junction and must be able to meet the expectations of the financial analysts on bourses. He must be both risk taker and conservative in his approach at the same time. He must take the company to public, but keep the reins in firm control. He must set highest standards on transparency, public reporting, financial prudence, but at the same time, he must also ensure that the fundamentals of finance like minimising costs, minimising expenditure, invsting surplus cash, and good return on investment are met.Entrepreneurs Guide to Managing FinancePage 3 4. tkjain's 10 Principles of Financial Management for Entrepreneurs 1.pay before the due date: most people will ask you to pay ondue date, I ask you to pay before due date. Your creditors will value you and respect you. Interest of a few days make a very small amount, but the goodwill that you make in the process make a big difference. This is my philosophy and I have always benefitted from this. 2.deal with only A class customers : a leading entrepreneur told me that when he entered a new city, he first classified all the dealers into A, B and C and then started dealing with only A class dealers. This is the truth of a good business entrepreneur. Classify customers into three categories on the basis of their credit-worthiness. Deal only with A class customers. You wont repent. If you pick up one C class customer, he will kill all your time and energy and will make you completely disappointed (by not making payment on time). A class customers are those, who make the payment before due date and who are 100% credit worthy. You can sell them against their acceptance of bill and be assured that they will not default. You are able to concentrate on more important things. I have seen entrepreneurs spending all their time in collecting their payments. This is because they deal with all types of customers. Be selective in your business dealings. If a C class customer deals with you, deal in cash only. People will slowly understand that you have your standards and you are not willing to compromise with them.3.understand value of money : what is the worth of money? Your rate of return in your business is 20% per annum - so the value of 1 is 1.2 after one year and it is more than double after four years. The value of money depends on the rate of return that you generate. Your business must generate higher and higher rate of return. Dont go by the rate of return that banks give.Entrepreneurs Guide to Managing FinancePage 4 5. 4.borrow to repay : business grow with borrowings. Borrow to repay. Borrow at half the rate of your internal rate of return. If you borrow, ensure that you are able to save after repaying your loan. If your rate of return is 18% and you borrow at 18%, you actually incur loss. Hence, be calculative about your business and identify the sources which can give you loan at lower and lower rate of interest.5.faster cycle, better working capital : the growth in business doesnt depent on your capital - but on your WORKING CAPITAL. Try to speed up your working capital cycle. Try to squeeze your working capital cycle in smaller and smaller duration. Try to ensure that you are running a business with more working capital cycles than your competitors. Reducing working capital cycle requires the following : - a. collect payment faster even if through bank financing b. keep less inventory c. keep less working capital d. keep less dead stock e. order only when you realy require f. adopt practices like JIT (Just in Time) to minimise investment in inventories g. follow up with your distribution channel to ensure that they are also able to sell faster and collect payments faster.6.go to public : going to public means going to stock markets - going for public issue of your equity, issuing shares, debentures and other instruments. Even if you dont require finance, go to public. Going to public changes your business completely. It makes you more responsible, more presentable, more careful and shapes you for the future. You are update on the market and public reaction. Analysts look at your company and write reports, which are often useful to you also. You are able to see the perspectives of others. You are able to have publicity without investment. The requirements of stock markets make your more systematic in your annual reports and in your periodical reports. Your business systems improve and help you in your improvements. Now even a small company can go public under the SME scheme of Bombay Stock Exchange.Entrepreneurs Guide to Managing FinancePage 5 6. 7.documentary finance - the best way to help your customers : your customers will require your support, like you require support of your creditors. Your customers will ask you for credit. Help them - if they are really genuine parties and credit worthy. Give them credit - but not at your cost. You can raise bill on them and get those bills discounted through banks. Thus you get cash immediately and your customer doesnt have to pay it immediately. You are able to help your customers without compromising on your liquidity. You can raise your8.invest your extra cash: how you use your cash that determinesyour returns. You must be vigilent about your surplus cash. Dont keep any extra cash. Try to have most transactions through banking channel. Try to minimise your cash requirements. Keeping your extra cash in high return investment is good idea, but for your liquidity (liquidity means whenever you require money, you can have it) is more important. Entrepreneurs benefit from keeping liquidity. You dont know when opportunity will come. When it comes, you need liquidity. Therefore invest your extra cash in those sectors, which can give you liquidity. 9.love risk but play in limits: entrepreneurs love risk and theymust do. Risk helps you to grow your business. Risk in business keeps nonserious players away from business. It is not a fixed monthly salary that lures entrepreneurs but the volatility, uncertainity, and the real time situation that enables entrepreneurs to jump and create businesses. Entrepreneurs have to learn to live in risk. However, they have to be calculative about risk. They must play in safe limits. Risk beyond capacity creates stress, tension, and ultimately business failures. Risks create a possibility of loss and higher the risk, higher the possibility of loss. Hence, entrepreneurs must respect a reasonable limit of risk and must keep themselves withing that limit. Entrepreneurs Guide to Managing FinancePage 6 7. 10.forgetyour sunk cost, fixed cost and un-avoidablecost: while taking important decisions like pricing, expansion,diversification, make it a point to keep your pricing on the basis of variable cost and forget your sunk cost, fixed cost and un-avoidable costs. While keeping your margins, you may keep higher margins as a parctice so that you are able to cover these costs. You should not loose a business just because it covers only variable cost. It is more important to remain in business and connect to the customers. The customers of today may generate huge returns tomorrow and may also gift you a lot of new customers by being your brand ambassador. Therefore make it a point not to loose your customers. There may be times, when you may have to price just to cover your variable cost so that you are able to make an entry into a business.Pl. do read my other articles also - which are freely available on the net : Entrepreneurs Guide in Managing Marketing for Tomorrow Entrepreneurs Guide to Managing Human Resource 10 Point Orientation Programme for the Future Entrepreneurs Beginners Guide to Career Enrichment Biographies of Great Scholars from Bikaner Bikaners Greatest Role Models of our times Sujit Lalwani An Inspirational Leader and Social Entrepreneur Abhay Jain Granthalaya Bikaner Harakh Chand Nahata The Great Social Entrepreneur I also need your support - I also need your network - I also need your patronage - I also need you. Entrepreneurs Guide to Managing FinancePage 7