2013
Dr. Trilok Kumar Jain
Dean, ISBM,
Suresh Gyan Vihar University Jaipur
www.gyanvihar.org
11/29/2013
ENTREPRENEURS' GUIDE TO MANAGING FINANCE
Entrepreneurs Guide to Managing Finance Page 2
ENTREPRENEURS' GUIDE TO MANAGING FINANCE
by : Dr. Trilok Kumar Jain
Dean, ISBM, Suresh Gyan Vihar
University, Jaipur, India
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 Finance Page 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 entrepreneurs
Introduction
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 Finance Page 4
tkjain's 10 Principles of Financial Management for Entrepreneurs
1. pay before the due date : most people will ask you to pay on
due 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 Finance Page 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 Finance Page 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 your
8. invest your extra cash : how you use your cash that determines
your 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 they
must do. Risk helps you to grow your business. Risk in business keeps non-
serious 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 Finance Page 7
10. forget your sunk cost, fixed cost and un-avoidable
cost : 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
Bikaner’s 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.
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