ET CONTRIBUTORSBy Rishi Mehra
A good business idea or a good job will mean little if you do not get your finances in order. Financial planning is often intricate and involves a lot of processes, but a few overarching tactics can help you succeed. During the tenure of my career and business, I have found the following tactics to be helpful:
Determine expense
As an entrepreneur, senior management or at a personal level, the first step to financial success inevitably lies in determining your expense. Getting a grip on your expenses can mean the difference between success and failure. Expenses will be fixed or variable in nature. Fixed expenses are the once which tend to occur every month or at a given period and one that tends to stay stable. This can include rent, salary expenses, business subscriptions among others. Variable expenses change every given month or period and would include items like electricity, payment to vendors among others. It is advisable that you keep a close eye on the variable expense component and cut back on what you think can be wasteful.
However, I would also ask everyone to take a long hard look at the fixed expenses. Can you cut down on rent by shifting to a cheaper area? Can you juggle salary payments more effectively? Sometimes reducing fixed expenses is a better way of managing finances and also a smarter move.
Taxes
Taxes, as an outgo of money, is something that can be minimised. At a corporate level and at a personal level, it is important to know how best to save on taxes. Saving taxes under existing structure is legitimate and there is nothing illegal about it. In fact, what is surprising is that many do not know about the range of tax benefits available.
At a personal level it may be easier to know the tax benefits available to you, but I am often surprised that people do not make use of their tax benefits despite being eligible for it. For example, an assessee can get deduction under Section 80C upto Rs 1.5 lakh, but most do not even take full advantage of this section and continue paying taxes.
Similarly, in the corporate world, most organisations do not know all the deductions or provisions applicable and end up paying more. Then, there are cases where you end up paying a penalty because you did not comply with certain tax requirements. My advice would always be to invest in a good CA and get your finances done. It may cost you a little, but the benefits will far outweigh the payouts.
Budget income
As much as you look at expenses, it is vital to look at your income. While it is a no-brainer that more income can lead to better financial position, where people stumble is when they do not budget it properly. Often in business, there will be a time lag between what you earn and when you actually get the money in your hand.
For example, if you raise an invoice today, it may take a few days or perhaps weeks before the money is credited to your account. You may be following the accrual system of accounting where expenses and incomes are recorded when they are incurred, regardless of when actually the movement of money happens. However, when you are planning what matters is cash-in-hand and hence it will be prudent to stagger your expenses in such a way that you always have a buffer in terms of money.
Sources of funds
The source of funds is one aspect that often gets overlooked. Money can be raised through different avenues and at a personal and a company level, one has to keep in mind what comes along with it. For example, can the source of funds be a credit card and if yes, one has to keep in mind the due date, amount and the rate of interest payable in case you cannot pay the full amount. For a company the choice for the source of finance can be debt, equity, venture money, among others, but each comes with some strings attached.
Sometimes where you get your money from has a profound impact on how your finances turn out to be in the future. Think long and hard and ultimately it comes to juggling choices and determining what works for you best.
Contingency fund
It is always good to keep some money aside for the rainy days and forget about it. Setting up a contingency fund has proved to be useful for me and whenever you feel you have some extra cash to spare, either personally or in your business, set it aside for an emergency. If you ever need cash urgently, this fund will be a good source to dip into.
The author is co-founder of Wishfin.com.
A good business idea or a good job will mean little if you do not get your finances in order. Financial planning is often intricate and involves a lot of processes, but a few overarching tactics can help you succeed. During the tenure of my career and business, I have found the following tactics to be helpful:
Determine expense
As an entrepreneur, senior management or at a personal level, the first step to financial success inevitably lies in determining your expense. Getting a grip on your expenses can mean the difference between success and failure. Expenses will be fixed or variable in nature. Fixed expenses are the once which tend to occur every month or at a given period and one that tends to stay stable. This can include rent, salary expenses, business subscriptions among others. Variable expenses change every given month or period and would include items like electricity, payment to vendors among others. It is advisable that you keep a close eye on the variable expense component and cut back on what you think can be wasteful.
However, I would also ask everyone to take a long hard look at the fixed expenses. Can you cut down on rent by shifting to a cheaper area? Can you juggle salary payments more effectively? Sometimes reducing fixed expenses is a better way of managing finances and also a smarter move.
Taxes
Taxes, as an outgo of money, is something that can be minimised. At a corporate level and at a personal level, it is important to know how best to save on taxes. Saving taxes under existing structure is legitimate and there is nothing illegal about it. In fact, what is surprising is that many do not know about the range of tax benefits available.
At a personal level it may be easier to know the tax benefits available to you, but I am often surprised that people do not make use of their tax benefits despite being eligible for it. For example, an assessee can get deduction under Section 80C upto Rs 1.5 lakh, but most do not even take full advantage of this section and continue paying taxes.
Similarly, in the corporate world, most organisations do not know all the deductions or provisions applicable and end up paying more. Then, there are cases where you end up paying a penalty because you did not comply with certain tax requirements. My advice would always be to invest in a good CA and get your finances done. It may cost you a little, but the benefits will far outweigh the payouts.
Budget income
As much as you look at expenses, it is vital to look at your income. While it is a no-brainer that more income can lead to better financial position, where people stumble is when they do not budget it properly. Often in business, there will be a time lag between what you earn and when you actually get the money in your hand.
For example, if you raise an invoice today, it may take a few days or perhaps weeks before the money is credited to your account. You may be following the accrual system of accounting where expenses and incomes are recorded when they are incurred, regardless of when actually the movement of money happens. However, when you are planning what matters is cash-in-hand and hence it will be prudent to stagger your expenses in such a way that you always have a buffer in terms of money.
Sources of funds
The source of funds is one aspect that often gets overlooked. Money can be raised through different avenues and at a personal and a company level, one has to keep in mind what comes along with it. For example, can the source of funds be a credit card and if yes, one has to keep in mind the due date, amount and the rate of interest payable in case you cannot pay the full amount. For a company the choice for the source of finance can be debt, equity, venture money, among others, but each comes with some strings attached.
Sometimes where you get your money from has a profound impact on how your finances turn out to be in the future. Think long and hard and ultimately it comes to juggling choices and determining what works for you best.
Contingency fund
It is always good to keep some money aside for the rainy days and forget about it. Setting up a contingency fund has proved to be useful for me and whenever you feel you have some extra cash to spare, either personally or in your business, set it aside for an emergency. If you ever need cash urgently, this fund will be a good source to dip into.
The author is co-founder of Wishfin.com.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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