For an established businessman or entrepreneur around 35 years of age there is a need to look further into the future to make the money earned work harder to build up your assets base. So, even as your income statement is showing a healthy profit and the cash is flowing in at a steady pace, here are 8 wealthsmith ideas to manage your money: 

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Avoid high-cost debt at the very outset

If you are an entrepreneur, the last thing you want is to get stuck in high-cost debt that can put pressure on your personal finances and on your business finances. Use any liquidity you have to get rid of high-cost loans as they can be a major drag on your own solvency and your business solvency.

Ensure that your life is adequately insured

As an entrepreneur, you are responsible for your personal finances and for you’re the finances of your business. Ensure that your life is adequately insured to take care of your family expenses. Also look at key man insurance for yourself considering your role in the business.

As an entrepreneur, health is your wealth too

You cannot allow sudden hospitalisation expenses for yourself and your family to put a strain on personal finances and on business. Your family should have adequate health cover to overcome any kind of exigency without impacting your cash flows.

All assets and liabilities must be adequately insured

Insuring your life and health is one part of the story. Equally important is to insure your assets and your liabilities. Any loans for your home or car should not become a burden on the family. You cannot afford to spend your cash flows towards replenishing your assets. Get them insured.

Keep aside an emergency fund to take care of routine expenses

Emergencies could come in a variety of ways. You could be confined to bed for a couple of months or your business may be going through regulatory issues. Have an emergency fund in place to take care of these exigencies.

There must be a steady portfolio of debt funds to fall back upon

When you are running a growing business you must have a good chunk of your funds in safe instruments like debt funds and bank fixed deposits (FD). But are they not sub-optimal? There is a reason here. It is hard to predict the sudden need for funds that may arise and you cannot do a distress sale of your equities. A better way will be to either use your debt funds or to take a loan from the bank against your FDs. This is an important building block if you are a growing business.

Don’t lose out on the opportunity to create wealth through equities

At the end of the day, you need to create wealth for your business and for your family. You need to ensure that your business cash flows are intelligently utilised. You need to provide for liquidity and low volatility assets, but you can surely afford to take some amount of risk. Equity funds will help your business also build wealth over a period of time. In your case, the equity funds will be a veritable source of wealth creation in the long run.

Create a second line of defence for business

This is always advisable when the business is overly dependent on you. Get your spouse more involved in the day-to-day operations so that there is a back-up. Let your spouse, your key colleagues, your lawyers and auditors know a lot more about the nuances of your business. Also, talk to your lawyer and create a succession plan. It will avoid hassles in the future.

By Vaibhav Agarwal

(The writer is head of Research and ARQ, Angel Broking)