4 May 2022

Good day, and welcome to another Wealth Wednesday, where we talk about all things financial.

The big difference for us entrepreneurs, especially in the early stages of entrepreneurship, is that we are taking a significant risk in our enterprises, which may or may not be sufficient to cover our continuous expenses.

For any person, investments should be planned in line with one’s risk profile, investment horizon, cash flow requirements, and any other client-specific constraints. Hence, we may need to withdraw some amount regularly from our investment portfolio to sustain our lifestyle requirements. Also, it’s always advisable to keep some emergency funds around, should there be any health-related issues for oneself or family members.

Hopefully, beginning your journey as an entrepreneur you should have health insurance and a term life insurance for any eventuality to take care of your family from the loss of future income.
Further, the business may also need cashflow from time to time, and to that extent, maintaining sufficient liquidity in the portfolio is preferable.

Given that any new business may take two to three years to reach operational breakeven, it needs to be funded with one’s savings or the loans from friends and family. At the same time, we must maintain a lifestyle for day to day from investments. Because of these, typically the portfolio has higher debt allocation than what would have been otherwise.

Once your business stabilizes and the cash flow starts coming, given the profitability, your salary starts accumulating or the dividends that are received. I recommend keeping personal investments separate from the company investments as the company is a different entity, and I often come across business owners mixing these and spending all the funds back to the company.

I often face this dilemma amongst entrepreneurs, as to why they should have a separate investment portfolio when their own company gives a better return. It’s crucial to remember that a company may have obligations at any time, therefore individual investment profiles should be kept separate or put into safe debt instruments, but it’s important to distinguish the two.

I have also witnessed that usually, the risk appetite becomes very high as the entrepreneurs have seen success and there is a tendency to invest in risky assets or unlisted companies. There I recommend following a framework of building an investment policy statement of capping exposure limits to control.

I know, this might seem overwhelming, so if you require some guidance in this regard, reach out and let’s discuss your business needs.

To Your Success,

Jeanetta Cardine

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