If you’ve got a business idea and you couple that with an entrepreneurial itch, you may find yourself tossing and turning at night trying to figure out a plan for moving forward — dreaming of the day you’ll become your own boss.
I’ve hung my shingle in the past and know from experience that there are ups and downs to starting and owning a business. The initial years can be especially tricky, but the long-term payoff can also be financially and personally rewarding.
If you’re up for the challenge and excited by the prospect of becoming a business owner, there are a few steps you can take to help make sure you’ll start your new venture on sound financial footing.
1. Create a business plan. Using a written business plan as a guide for your first few years as a business owner can be very helpful. The process of researching and writing your business plan can also teach you more about the industry and may help you better understand the viability of your idea.
A good place to start could be with either the U.S. Small Business Administration (SBA) or the SCORE Association (a non-profit supported by the SBA), who have free resources and training that you can use to help you create a business plan.
Once it’s complete, you can use the business plan to attract partners, investors and employees who share your vision for the future of the business.
2. Research your potential start-up costs. You might already be adding up necessary expenses in your head: a website, office or retail space, payroll if you need to hire employees, etc. However, there are also lesser-known expenses that may surprise first-time business owners.
For example, you could have to pay fees and permitting costs to your city, county or state. And depending on the business, you may need to get licensed and purchase insurance, all of which have costs that can add up.
Knowing your actual start-up costs, which should be factored into your business plan, can be important as you look for funding. And whether you’re tapping into personal savings, asking friends or family for investments, crowdfunding or applying for a loan, you should stop to consider the potential pros and cons of each approach.
3. Separate your personal and business finances. Even if you’re starting as a sole proprietor and decide not to form a business entity, it’s generally a good idea to separate your business and personal expenses.
One way you might consider doing so is by opening a new bank account that you only use for business-related transactions and putting all your business-related purchases on a debit or credit card linked to that account.
Keeping your accounts separate can save you time when you file your tax return or need to review your expenses. If you incorporate your business, separating your personal and financial accounts can also be an essential step in limiting your personal liability.
4. Consult with experienced professionals. Setting your time aside for research and learning can be important, but paying for professional expertise now can help you protect your business later and lead to long-term savings.
• Attorneys can provide guidance as to how to structure your business and make sure the legal paperwork matches the vision in your head. They may also be able to tell you about relevant local laws that could impact your business.
• Accountants can help you determine which business type (e.g. an LLC versus an S corporation) makes the most financial sense.
• Insurance agents or brokers can tell you about the different types of insurance you can use.
Bottom line:
When you strike out on your own, money isn’t always the most important thing — hopefully you’ve found something you also love to do — but you want to make sure the numbers add up. Putting in the time to make sure your finances are in order, and creating a plan for how you’ll grow your business, can be essential to becoming a successful entrepreneur.
Hugh Norton directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and your situation.
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