Are you juggling Funds?

 Are you juggling Funds?

Entrepreneurs who manage multiple businesses often find themselves transferring funds from a successful business to one that is struggling. While this approach may seem reasonable initially, it can lead to significant challenges in the long run. One primary concern is that this practice can weaken the financial reserves of the thriving business, leaving it vulnerable due to a lack of funds for future innovation, renovation, and expansion.

Many entrepreneurs can relate to this situation. Some perceive borrowing from external sources as an expensive option and believe it is better to use funds from a more successful business instead. However, each business should be treated as an independent entity, responsible for generating its own revenue and repaying its debts.

It is not uncommon for underperforming businesses to rely on support from their more profitable counterparts. While this may be acceptable temporarily, it cannot continue indefinitely.

Here are some key points to consider:

1. Track Fund Transfers: If you borrow from another business, calculate the interest on those funds and ensure you pay it back over time. Even though you might feel it's your money, remember that the efforts of your employees actually generate it.

2. Avoid Personal Funding: Refrain from constantly injecting your personal funds to keep a business afloat, as this can adversely affect your personal net worth.

3. Consider Bank Loans: Borrowing from banks may seem daunting, but it can encourage you to earn and repay, fostering greater discipline in managing your finances.

4. Incorporate Interest Costs: Always factor in interest costs when pricing your services or products. There’s no such thing as "free money." If you neglect to include interest in your pricing strategy, one business may appear profitable while others do not. Additionally, using personal funds without compensation leads to a loss of interest. For instance, had you invested those funds in equities, bonds, mutual funds, or fixed deposits, you might have seen returns that would have increased your net worth. Instead, failing to do so may leave your personal finances stagnant, which could hinder your ability to secure funding for your business.

5. Separate Entities: Treat each business as a separate entity and work toward discontinuing the practice of juggling funds among them. If your financial management is not transparent, it could diminish your credibility in the financial market, harming your relationships with lenders, bankers, and investors, and jeopardising growth across all your businesses.

M.L. Narendra Kumar