If you’re thinking about starting a business, make sure you have your finances in order before your big launch
Starting a business is not an easy professional or personal step to take. When you are getting your business off the ground, the work can often feel difficult and time-consuming. However, the hard work that goes into starting a business will all pay off eventually as long as you make smart financial decisions!
That’s why we’re discussing the top financial concerns that you need to address before you start a business. Becoming an entrepreneur takes a lot of preparation—and we’re here to help! We’re going to be detailing the steps you need to take to make sure you can comfortably start your business and set yourself up for future success. But, before you start dreaming of earning your own income, you need to make sure your finances are ready to go. If you’re ready to make sure that you have all of your bases covered before getting started, then we highly recommend that you keep reading!
Life insurance will give you and your close loved ones peace of mind.
Though life insurance may not be the very first thing you think about when starting a business, it is most important as you begin planning and securing financing. Becoming an entrepreneur is very expensive and often requires a large amount of savings or outside investors. A lot of entrepreneurs will take out loans to help their business get off the ground.
Life insurance protects your loved ones in the event of your death. As you pay into an insurance policy, you are contributing a sum of money that will go to your loved ones in the event of your death. Should you die while your business is still in its early stages, all of your outstanding debts will be transferred to your loved ones. This includes any business obligations that you left behind. Because no one wants to burden their family members with their business expenses, it is essential that you purchase a life insurance policy.
Though it is important to have a life insurance policy when you are starting a business, many people find that the approval process takes too long. When you’re building a business, there isn’t any time to waste. Because the approval process can take anywhere from 6-8 weeks, many entrepreneurs are choosing to skip the medical exam. No exam life insurance is a type of insurance that allows potential policyholders to skip the medical exam including blood tests. The blood tests are usually what causes the holdup for approval since they can take several weeks for results. When you choose no exam life insurance, you can cut the 6-8 week waiting period down to just a couple of days. Once you’ve secured your no exam life insurance policy, you can feel content that you are protecting your loved ones financially. When you’re fully insured, you can get right back to planning the launch of your business.
Your emergency fund can really come in handy during slow business times.
Having enough cash to fund your business—even if things don’t go as planned—is essential for small businesses survival. Unfortunately, a lack of cash flow is the most common reason that new businesses are forced to close their doors. That’s why any potential entrepreneur needs to establish an emergency fund. Your emergency fund can help you out with unforeseen expenses like material costs, rent hikes, slow sales, or repairs to your physical location. You can never plan on everything involved with your business going perfectly, so it is critical that you establish an emergency fund with anywhere from 6 months of your total expenses. By doing this, you are ensuring that your business can survive periods of low sales or other types of financial setbacks. To be extra careful, you may even want to stash away 9 months of your expected business expenses, just to make sure your business will stand the test of time.
Don’t let your debt jeopardize your business.
Another important financial step to take before you open the doors for your business is to pay off as much of your outstanding debt as you can. As we previously mentioned, many entrepreneurs will need to take out loans to finance their business. When you are searching for a lender to help finance your business, having minimal debt is a great help. If you are able to pay off a large amount of your debts before you start applying for loans, then you will have a greater chance of getting approved and securing a lower interest rate.
It is also important to mention that when you are starting a business, you should have as little debt dragging you down as possible. If your business isn’t immediately profitable, there is a decent chance that you will have to dip into your savings or your emergency fund to pay off your existing debts. Though this is not something that is guaranteed to affect your business, paying off your debts before starting a business certainly makes the whole process a lot less financially strenuous.
It is financially responsible to plan for every possible outcome.
No one wants to imagine the hard work and time they’ve spent on their business to go to waste. However, it is financially responsible for all entrepreneurs to have a contingency plan in place—just in case. In order to come up with a contingency plan, it is important to assess your expectations for your profits and losses. When you are taking stock of these expectations, you should decide on a failure point where the business is no longer viable. From there, you can begin to brainstorm different ways to exit the business while incurring as little financial loss as possible.
It is always good to keep your personal finances and business finances separate.
As you have probably already figured out, how you manage your finances is what will set your business up for success or failure. If you take all of the right steps and closely manage your business finances, there is a good chance that you will be able to create lasting success.
If your finances are mismanaged, then getting your business off the ground will be a lot more difficult. The first step you should take to properly manage your business finances is to set up a separate business checking account. Creating a separate business account will make your life a lot easier during tax season since your finances are clearly separated. Additionally, you’ll be able to clearly monitor your earnings from your separate business account.
Get your business started on the right foot with a financial advisor.
Not every entrepreneur is a money expert! If you are searching for some extra help when it comes to getting your business started, you may want to consider hiring a financial advisor. A financial advisor can help you navigate the most complex elements of starting your business. For example, when you work with a financial advisor they can help you establish a viable business plan, get all tax documents in order, and even give you guidance on a contingency plan. Though not every entrepreneur requires a financial advisor, they are able to provide a great service to those who need some extra help.
Getting your finances in order should be one of your top priorities if you are interested in starting a business. Your current financial situation will provide the foundation for you to grow your business. We hope you found each of these points helpful as you begin planning and launching your business. Once you’ve taken care of the financial considerations we’ve listed, you’ll be well-positioned to become a successful entrepreneur!