After months or maybe even years of contemplating the idea of starting your own business, you’ve decided to take a chance. Though you realize it can take time to be successful, you’re willing to take the journey. You’re so invested that you’ve begun researching, selecting a company name, and developing a solid business plan. However, if you haven’t considered your finances, there are a few things you need to do before taking that leap of faith.
Financial Management
When starting a business, the idea is to generate income, which can help improve your finances. Be that as it may, much of starting a business is impacted by your financial status. If you don’t have the money to sustain your business’s costs until you can generate income, you won’t last very long. Not to mention, if your finances are already in shambles, it can impact your ability to acquire funds through other sources. That’s why you must make these money moves before getting started.
Reduce Your Debt
Going into business with too much debt is wrong for a few reasons. First, the more debt you have, the less of you have to invest in your business. Second, if you’re considering borrowing startup funds from a financial institution, your poor credit history can cause a problem. Since your company has no credit, lenders look at your personal finances to determine if you qualify and how much they’re willing to give.
While some debts may take longer than others to pay off, getting your debt to a more manageable amount is recommended. Dedicate any additional funds to your bills, contact creditors for payment arrangements and settlements, and sticking to a tight budget are all efficient ways to knock out your debt. If that’s not enough, there’s also the option to consolidate your debt through reputable sites like MemphisAssociates.com.
Increase Your Savings
It can take weeks, months, or even years before your business starts to generate profits. During this time, you’ll need to be able to cover operational costs and personal expenses. Without a nest egg to fall back on, you’ll have no choice but to end your dream and return to the workforce. Not to mention, you could find yourself in financial overwhelm from all the bills that have fallen behind.
Before you decide to start a business or quit your job, make sure that you have decent savings. Ideally, you want to try and set aside at least three to six months’ worth of income and expenses to tide you over. Review your budget and determine how much you can reasonably afford to put into an account. Set up an automatic savings plan so that payments are directly debited from your checking to your savings.
Create a Budget
One of the most important things to know about your business is its cost to run. You’ll need this information to arrange your finances and to acquire additional funds from lenders or investors. Do some research to get a total for initial and ongoing costs for your business. While all companies will vary, some expenses to consider include registration and insurance costs, technology, equipment, office or commercial space, utilities, marketing, staffing, production, and manufacturing.
Break these averages down into monthly amounts to create a budget. Then, evaluate your personal finances or other income sources to determine how you’ll cover these expenses for the foreseeable future. The budget can also be added to your business plan to show prospective lenders or investors.
Starting a business is an effective way to generate income and secure your future. Though getting ahead takes lots of research, time, and money, it can be a fulfilling experience. Before deciding to embark on this journey, however, you must evaluate your finances. As having access to capital and credit are essential to making it, you’ll want to ensure you’re in a position to manage things accordingly. If you haven’t done so already, use the money moves discussed above to prepare yourself to pursue your dreams.