Many people believe that launching a business carries substantial risk. Undoubtedly, you’ve heard the grim statistic that “half of all startups fail.” But it’s important to remember that every coin has two faces. Financial setbacks, such as exhaustion of funds, inability to pay staff, or insufficient product sales – often contribute to business failure.
To prevent such business crises, it’s essential to lay financial groundwork before embarking on your entrepreneurial journey. Below are six strategic financial steps to take before initiating your business:
1. BUILD A LARGE EMERGENCY FUND
Inevitably, your business will face slow periods where outgoing payments surpass incoming revenue. To combat such instances, save up a substantial emergency fund before starting your business. How much you save depends on your financial capacity.
You might also want to keep separate savings for personal and business purposes – for instance, putting aside five months’ worth of personal expenses and three months’ worth of business expenses in distinct accounts. Assess your regular outflows and set aside a comfortable amount to meet emergencies.
2. SETTLE OUTSTANDING DEBTS
Launching my online business, I also had some debts, albeit minimal. I aimed to clear as much debt as possible to reduce my financial burdens. Business startups require capital investment. Official registrations, startup supplies, and equipment costs are fairly common.
It’s advisable to finance these expenses with cash flow, but extensive debt payments can make it difficult. Create a plan to repay your highest-interest debts first, then concentrate on the rest. Once a debt is cleared, return the money to your budget or save it.
3. START SELLING TO YOUR TARGET AUDIENCE
In my observation, many new business owners obsess over creating the perfect website, branding, and social media presence, overlooking a crucial element: Will their products or services indeed sell? Concentrate on identifying your target market and start marketing and selling to them. Understand their needs and tailor your offerings for optimal value.
Before plunging headlong into your venture, test your offerings by working with clients alongside your day job, gauging potential profitability. Only after significantly surpassing my full-time job income did I wholeheartedly embrace my business. Knowing that you have a viable concept and a supportive customer base can spell success for your venture.
4. CONSULT A TAX EXPERT
As an entrepreneur, you’ll be responsible for paying your taxes. When starting, I knew little about this aspect. I was fortunate to receive a recommendation for a CPA who expertly guided me through tax matters.
Make it a point to connect with a reliable tax professional early on. Their insights about monthly tax savings, quarterly tax contributions, and more are invaluable. Trust me, come tax time, you’ll be relieved.
5. CALCULATE AND MONITOR BUSINESS EXPENSES
Prior to business initiation, an essential step is to devise your business budget. List initial setup costs, recurring monthly expenses, and sporadic yearly expenses. For instance, my business requires payments for software, training courses, email marketing, and contractors. My monthly expenses stay under $1,000, and plotting an authentic budget assists in managing this.
Accurate estimation and tracking of business expenses can offer a real glimpse into the financial resiliency of your business.
SUMMARY
Starting a business demands hard work, but it’s also remarkably fulfilling. Thoroughly consider the financial side of running a business before you jump in, and take necessary steps to bolster your financial readiness.
Choose one item from this set of advice and begin focusing on what’s most pertinent to you. SmartAsset.com.
