Picture: 123RF/LANGSTRUP
Picture: 123RF/LANGSTRUP

As an entrepreneur, I know how difficult it can be to manage your finances effectively. Often the lines between personal and business funds are blurred, particularly in the beginning when you're trying to establish your business as an independent and self-sustaining entity.

The Seed Academy, an entrepreneur support programme, found in its latest "State of Entrepreneurship" survey that 60% of the surveyed entrepreneurs were full-time entrepreneurs and that the majority (88%) were self-funded.

Self-funded entrepreneurs, who have no other income source, can be under an incredible amount of pressure. The reality with starting a business is that it can take longer than anticipated to be profitable.

And once your business is profitable, the money you earn from it needs to be looked after in a sustainable way. A few things to bear in mind:

Don't spend it all

Leave some room for the dry seasons, because they will come. It may be tempting to spend your money, but it's imperative to create a safety net for both your immediate and future needs first.

A great starting point is to create an emergency fund. It is recommended that you keep between three and six months' worth of your expenses in a secure, easily accessible account for unforeseen circumstances. These can include accidents and medical expenses that aren't covered by insurance and loss of income.

If not planned for, these situations can wreak havoc on your finances and your life. Mitigate the disastrous effects of these events by building up a kitty to fund them. If you can build up more than the recommended amounts, even better.

What the world is experiencing now through the accelerated spread of Covid-19 is one for the books. Many businesses are going to fold, which will have disastrous effects on all of us.

Once your short-term needs are protected, you must consider investing for your retirement. The future value of your business can form part of your retirement savings calculation. However, there is no guarantee that it will be enough for your needs at the time you'll need it.

A prudent way to plan for your retirement is to build up assets outside of your business, to minimise your overall risk. Saving adequately outside of your business gives you the necessary protection and freedom to decide that outcome.

A former client had a consulting business that serviced both the government and the private sector. Business was booming years ago and he often said financial planning was a waste of his time.

Our weak economy has affected his business in the past few years and I recently learnt of the unfortunate financial position he now finds himself in, all of which could have been avoided with a bit of planning.

Protect your income

Many entrepreneurs don't have the security and luxury of an employer-funded retirement fund, subsidised medical scheme membership and group life assurance. This is especially the case at the beginning of the entrepreneurship journey when every cent is used to fund the business.

This is when you are most at risk as one major life event can be devastating. It can be tempting to cut costs, but disability income and temporary sickness cover are vital as they protect the one resource that keeps your business running - you.

Protect your loved ones

If you have people who are dependent on you for any kind of financial support, be sure to secure their livelihoods by getting appropriate cover for when you are no longer around. Ensure that you have enough life cover and that your estate will be wound up according to your wishes.

Look after yourself

Self-employment can be brutal, both on the bottom line and your overall wellbeing.

As an entrepreneur you tend to focus on your businesses at the expense of your health and wellbeing, as reflected in the Gallup wellbeing index, which found mental health directly or indirectly affected 72% of the entrepreneurs sampled. This study also found that entrepreneurs are more likely than other groups to experience depression, ADHD, addiction and bipolar episodes (from severe depression to overwhelming joy, excitement or happiness and huge energy, among other overwhelming feelings).

Many entrepreneurs are sole proprietors who have no-one to fall back on for support. You need to keep your spirits and your health (both physical and mental) in tip-top shape because you are your best resource.

A certified financial planner (CFP) is a trained professional who can help you with most of these issues, including a reliable estimate of how much you will need at retirement to fund your lifestyle and how you can start planning now to get there.

Your CFP will also help you work out how much temporary sickness, disability and life cover you require for your needs.

Sidaki, a certified financial planner, is director and wealth manager at Wealth Creed