How to Financially Prepare Before You Open a Business
If you’re wanting to start a business but aren’t sure where to begin, you’re not alone. Deciding to become your own boss is both exciting and terrifying, at times. While the idea of working for yourself sounds easy enough, there are a lot of things that can go wrong financially. In this guide, we’ll go over different tips to streamline your transition into entrepreneurship.
Open a Business Account
Opening a business account really needs to be at the top of your to-do list. It takes no time at all, and it can usually be done online. Depending on your needs, your bank may have specific programs and incentives in place to help small businesses. In addition, having a separate bank account will make doing your taxes a lot less stressful.
Get Your Personal Finances in Order
Before working on your business, you should also get your personal finances in order. Far too often, budding entrepreneurs think opening a business will solve their personal financial woes. Unfortunately, this usually isn’t the case. Take a serious look at your financial situation. If you’re paying on student loans but not really making any progress, refinancing might be a viable option. With certain programs, all you need to do is enter your personal information, choose the term and a monthly payment that works for you and submit. Lowering your monthly loan payment can free up money that you can then use to get your business off the ground. Also, look at how much you’re paying out each month in expenses. If you’re already paying out more than you bring in, you need to improve your debt-to-ratio as well.
Start a Savings Account
When you work for yourself, it’s either feast or famine, especially in the early stages. For this reason, you need to set up a savings account and start building a financial cushion. In addition to your regular monthly expenses, think about how much extra spending money you may need. It’s a good idea to have at least three to four months of bills and housing costs in the bank prior to opening a business. If you need to get rid of debt, those needs should be factored into your savings account strategies and plans as well.
Nothing spells disaster like improperly filed taxes, personal and professional. Talk to a tax accountant and inquire what you need to do in terms of filing and what percentage of profit you should be saving.
Understand Profit and Loss
Your profit and loss statement gives you a general idea of where your profit comes from and how much is being put back into the business. It can also help you forecast future expenses and profit as well.
Depending on your niche, you may deal directly with clients. If so, you need to set up an automatic invoice system. Choose a billing date and concrete due date for all of your invoices. You also need to let customers know that the due date is when payment is due. Some may think they have a grace period after the fact.