How To Financially Prepare for Entrepreneurship
Everyone wants to be their own boss, make the rules, stop living under the proverbial “man,” but it can be a scary plunge to take. Owning your own business requires financial responsibility and risk that many people aren’t willing to take on, but if you are up for the challenge and are going to chase down that elusive American dream then there are a few ways to keep things from coming to a screeching halt before they even start. The transition into the life of owning your own business can be an expensively slow and rocky road, but there are some things you can do put yourself on the right path, from the start. Before you venture on this journey, here’s what you need to do prepare for the ride.
1. Payoff all your credit cards. If you can’t pay off the balances on your credit cards now, you certainly won’t be able to once you start your business. You will also find yourself tempted to use those cards to cover the expenses of your business. Use these as your last resort. Paying off those cards now will give you some room to use them later, but relying on them for too many things in the startup process can quickly shut everything down.
2. Find your monthly budget, and then reduce it. You need to keep track of your basic expenses for the month: rent, food, insurance, gas and so on. When you do this think about how this will change when you start your small business. Will you save money on gas with a shorter commute? Will you eat out more when you have less time? Once you have a number in front of you that highlights your current expenses, try to make that number smaller. This isn’t anyone’s favorite part, but you will appreciate the savings later. Do you need the run the air conditioning at home, or can you open the windows? Do you need the super fancy touch screen phone? Do “Fruity O’s” really taste that different from the real thing? It’s cutting back on little things that can send money your way from places you never thought about before. Also, it’s smart to make the transition to these saving habits months before you make your move into entrepreneurship to reduce the shock you may experience when you lose those extra 30 channels during hockey season.
3. Fill your piggy bank. Before you take a single step towards your new business, you need to have a stock of money saved up. You should take the cost of your monthly expenses determined earlier, multiply that by six months, and set the bar there. You should have at least six months of your expenses saved up before you begin. With this, you need to make sure that you are realistic about how often you will be cracking into that piggy bank. A lot of people get the “do-it-yourself-bug” when they start their own projects. They think that they will do it all by themselves to save money. Know what you can do, and what you will need others to do. Will you hire an accountant? Will you need a handyman for small changes to your business space? Think about these future expenses when you are saving for your plunge.
4. Understand the benefits that you will lose. One of the biggest changes that small business owners incur is the cost of individual health insurance. Think about how to reduce this cost, for example switching your insurance plan before prior to your next birthday before they can increase the premiums based on age. Look at your retirement plans and understand how your investments will change when you don’t have a 401(k) matching plan to double your contributions. These changes don’t have to be life altering, but they are simple things that, if planned for in advance will remain simple.
5. Don’t get hasty and quit your job. You need to give yourself time to startup your small business, and keeping your source of income can be a huge help during this time. There is a long list of expenses you need to pay before you can even think of opening up your doors, and it’s smart to keep your current job until you have those taken care of.
Entrepreneurs are some of the hardest working, committed individuals in the workforce. It can be the most frustrating and rewarding experience at the same time, but taking the time to plan before you plunge can save you some of that frustration and bring forth more of the rewards.