Taking the plunge and starting your own business can be scary, with many things to take into consideration when making the decision. One of the toughest areas to get in check before stepping into entrepreneurial shoes is to make sure that your personal finances are organized. This doesn’t necessarily mean costs associated to your business – but rather the money that covers the home utility and grocery bills, mortgage payments, car payments and general living costs.
Today, our friends over at Jolly Good Loans are bringing you some top tips to ensure you put yourself in the best financial position possible before becoming self-employed.
First things first, get yourself organized by making sure you’re aware of your financial position. It’s no good having a great business idea and starting straight away if you haven’t thought through the potential financial repercussions. Carry out an audit on your current financial position and cover everything from how much you’re spending on a monthly basis and how or where you’re spending it to how much you have in savings and if there is any debt that still needs paying off.
Consolidating debts when starting a business can be time-consuming and can initially feel like a bit of a hindrance, but getting an action plan together of how payments can be met will lead to more financial flexibility once you’ve become self-employed.
Set a time frame
Once you’re organised and have a firm hold on your financial position, look at bringing your business plan into the mix. Your business plan will help identify goals you want to hit and what your financial expectations are. Part of this is creating an expected plan of when you think you’ll be able to start taking a wage from the business for yourself and the funds you need in order to set the business up.
Combining your time frame and plan will help identify how long you need to save money for, how much you need to save and at what point you need the business to be making enough money to take a wage from it.
Ensure you have reserves
Becoming an entrepreneur typically means long working hours. Working into the night and over the weekends becomes a way of life and before you know it, your schedule will be so jam-packed you’ll find making time for anything else near impossible. Failing to get your finances in order before starting means you might not have a chance to work on them again for a while – so use the time before you launch your business to get this in hand.
Set up a savings account that you’ll use for everyday life – an especially good idea if you’re the only person with an income in your household – and avoid using this cash reserve for any business needs. The reserves are there to ensure that month by month you can meet any mortgage payments, buy groceries and pay the bills. Getting this element of your personal finances organized before starting the self-employed journey will prevent you from worrying on a monthly basis about whether there’s enough money to keep you going.
Minimize unnecessary expenses
Before the self-employed life, you probably had enough disposable income to spend on meals out, social activities with friends, holidaying with the family and popping down the high street to update your wardrobe. Being self-employed doesn’t necessarily mean all of this has to stop, however, in the first few months, it’s a good idea to look at where you can cut back so that your reserves aren’t quickly depleted.
Prioritize on the necessary payments and reduce the luxury ones. Not only should you do this in your first months of business, but also the run-up. If you can start cutting back on expenditure early and putting money into your reserves bank account, you’ll be putting yourself in a more secure position come the day you take the step to being self-employed.
Ensure there are emergency funds
Emergency funds are different from having cash reserves. Cash reserves are there for your personal needs, while emergency funds are there to use within the business if needed. It’s not unlikely in the startup months that you could face cash flow issues and you should always prepare yourself for invoices not being paid on time.
As well as your cash reserves account, an emergency funds account could help the success of your business. In the lead up to starting the business, ensure you have some backup money to pump into the business in case something arises that couldn’t be planned for. Emergency funds could also be used to further invest in the business when it’s going well and help you grow to the next stage, so having this backup is vital for success.
Research available business grants
With entrepreneurship and self-employment becoming a chosen career path by many, there are multiple business grants and funding programmes available. Do your research when it comes to any external money you could access – it could be the difference between having to dip into your emergency fund or not.
As well as funding and grants to put money directly into your business, you can also get funding to attend certain events and training. If you find a pain point in your business plan and you’re not too sure how to approach it, you will most likely be able to find a course you could attend through a funding system. Doing your research will pay off in the long run, as you’ll find other ways to financially support yourself than just by using your personal savings pot.
So, there you have our top tips for helping you get to a stable financial position when starting your own business and how to maintain it until you’re in a position to pay yourself.
Keith Harrison is a content creator and writer for Jolly Good Loans – your online personal loans encyclopedia.