Before you launch any business, it is crucial to ensure your personal finances are in order so you can focus on the growth of your company.
Starting a new business is scary and exciting; it’s scary because the potential for failure is there, but it’s also exciting because it can result in incredible success.
If you’re thinking about starting your own company and becoming an entrepreneur, you might already have an idea you’re passionate about, which is the first step. Although the passion and idea are pivotal for success, they’re not the be-all or end-all.
If you don’t have the proper financing, your next big idea could fall short. Luckily, with a bit of legwork, you can become financially prepared to start a business.
Before you take the leap into entrepreneurship, read the three tips below. They’ll help you understand how to become financially stable before you launch your business. This way, you can spend your time and energy growing your company rather than stressing about getting it off the ground.
1) Understand the Full Financial Picture
Before you forgo your nine-to-five’s security and take a chance on your own company, make sure you understand that your finances will become twofold upon your leaving. In other words, you’ll have to plan for yourself and your business.
During the early months, your company will likely have limited cash flow. On top of this, your life won’t stop, so you’ll need to pay your living expenses, too. In order to properly prepare, it’s recommended that you estimate your first 12 months of costs – again, for yourself and your business.
Once you consider your living costs – they should be easier to calculate based off your prior history – consider your business costs. First, calculate the startup costs. Ensure you understand every fixed and variable cost you will incur as you begin. Next, calculate a break-even point.
2) Take a Look at Your Own Credit
In an ideal world, every entrepreneur would keep his or her business money and personal money separate. However, it’s no secret that many businesses require some personal funding to get up and running.
If you’re not quite sure where your credit stands, you’re not alone.
Luckily, you can pull a free credit score report from several online resources. Give special priority to these three credit bureaus, however – as of 2017, they’re accepted as the FICO standard. In general, credit advisers suggest going with a free credit report that also offers a “report card” – a document that explains which things are currently hurting and helping your credit.
Once you have a better idea of your standing, or if you already know your score, the next step is to improve it. Again, there are online resources to help you understand this information, but credit specialists recommend that individuals receive one-on-one support.
3) Consult a Tax Specialist
Even if you are a tax expert, you might find that you have little time to worry about taxes when you’re wearing several hats to start your company. To avoid potential costly mistakes, entrepreneurs can invest in tax professionals.
One of the most recognizable tax advisors is a CPA. To become a CPA, an individual must pass an examination with several sections – from business law to financial accounting. In general, they have a more broad focus and can help you with many matters.
Another common type of tax advisor is an enrolled agent (EA). These individuals also take exams, but they tent to specialize in preparing taxes, so their focus is less broad.
To understand what type of adviser is right for your business, think about when you will need assistance and how much your business will require. If you’re fairly tax-savvy and you will only need support during tax season, you might want to hire an EA. However, if you will need year-round assistance that may extend to more than tax matters, a certified public accountant (CPA) may be the best choice for you.
Are You Ready?
If you are a bit overwhelmed by the three principles above, do not worry – it’s totally common to feel nervous before starting a new company. Sure, it will take a lot of work to get yourself ready – financially and personally – but if you can do it, you’ll be on the way to chasing your dreams and changing your future.