Starting a small business can be a thrilling endeavor, and will hopefully be a positive experience for you. The stability of a business can be maintained by smart financial decisions that are made before you find yourself in trouble or encounter unexpected debt.
Prepare yourself for the future by following these 5 financial tips:
1. Begin contributing to your own cash reserve
Setting aside funds to start your business may not be enough to tide you over until profits come in. A cash reserve can cover costs in the interim, while you’re waiting for profits, and also help in planning for taxes that may catch you off guard and take a chunk out of the money you were planning to use on other expenses. Be sure to always put money aside for taxes.
Get in the habit of contributing to this reserve on a weekly basis, so that after six months you have a nice cushion.
2. Examine repercussions of personal debt
Not every promising entrepreneur is able to begin a business debt-free, but it is possible to set up a plan for paying off credit card or student debt so that you aren’t limited in the future. Leaving personal debt out of the picture could prevent you from securing future business loans and damage your credit score.
Make it a priority to pay off personal debt as soon as possible. This will allow you freedom to acquire business capital with good interest rates.
3. Separate personal and business finances
Independent accounts for personal and business finances will save you from confusion and protect you in case of an audit. Don’t just separate savings accounts. Make sure checking accounts and credit cards are also separate. By never letting these two sets of accounts overlap, you will be better able to manage bills, taxes and other expenses.
This separation protects your business’s credibility and your personal liability.
4. Make sure you get a paycheck too
Starting a small business requires making many sacrifices, but one of these should not be a paycheck. You might be tempted to make this choice in an effort to invest further in building the business, but it can come with a high cost to you and your family.
Part of your role in starting a small business is learning what type of salaries employees should receive—and this includes you.
5. Consult a financial expert
An accountant or tax adviser can go over your financial options with you and guide you through any parts of the process that are difficult or overwhelming. An expert’s help is particularly useful when you are trying to comply with tax and business regulations.
Do your research, and prepare as much as you can, but then ask questions. No resource is quite so valuable as a person who is familiar with the larger world of finance and your small business needs.
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Debby McGrew writes for Debt.org, America’s Debt Help Organization. She hopes her contributions will help consumers make smart financial decisions.