After years of running the proverbial rat race you’re thinking of starting a business. Maybe you’re working in a career you’re no longer passionate about. If your current job isn’t working out for you, entrepreneurship might seem like the way to go. But before you hang out your shingle, make sure you have a solid financial plan in place.
Risk Management The startup phase for most businesses is fairly risky as personal cash flow is negative and in many instances, you may find yourself funding the business personally. Furthermore, if you’ve taken on debt which you’ve personally guaranteed to get things up and running, you could lose more than just your business. But once the business is up and running and cash flow reaches a desired level, being an entrepreneur can be less risky than being an employee.
Reduce spending. This isn’t the time to buy a new house or car. Pay off their car notes and any other outstanding debts you may have. As an entrepreneur, it is your duty to focus on the elimination of the debts that have the highest interest rates first, for example, student loans. In case you have multiple loans you should consider debt consolidation. Some business expenditures can get pricey.
Keep business and personal finances separate. Having a separate business bank account will prevent confusion when it’s time to pay bills or payroll. In addition, it is vital to incorporate your business as a separate entity. If you don’t, you risk losing personal assets if you get sued.
Keep a Minimum Financial Amount As an entrepreneur, and depending on your financial capacity at the moment, you can come up with a certain amount that you are comfortable with; an amount that remains untouched and unaltered. This minimum amount can be increased gradually as the business keeps growing. This mode of operation is not only good for your personal finances, but also for the financial well-being of your business as an entrepreneur.
Building an Emergency Fund A majority of the population does not understand the importance of making savings meant for emergency situations. While this is not a good lifestyle choice, it is especially bad for entrepreneurs.A great emergency fund will not only keep you afloat in your personal expenses for well over six months if need be, but can also be used to aid your business through lean periods when your business is struggling.