If you're serious about owning your own business and are ready to take your dreams to the next level, it's important to have a solid financial plan in place before jumping into the world of entrepreneurship. Although completing a financial plan is the last step in writing a business plan, your finances should never be far from your mind. Here's some financial planning tips from entrepreneurs who have succeeded at starting their own businesses.
Establish Emergency Funds
Financial planners who specialize in small business recommend having emergency funds available before opening a business. By having back-up funds, you'll be prepared for the time between starting up and making profit – which can sometimes take years. Although some businesses can operate on a reserve of six months of savings, most financial planners suggest having at least 12 to 24 months of savings in an emergency reserve. Entrepreneurs should have two separate reserves, at all times: one for personal emergencies, and one for business expenditures.
Utilize Financial Management Software
Many entrepreneurs make the mistake of holding onto receipts until tax time, which can cause unnecessary stress as tax season approaches. Any business person, entrepreneurs included, cannot truly understand their profitability until they have an ongoing system that captures income and expenses. Fortunately, there's no shortage of productive financial options for entrepreneurs and small business owners. With so many options, entrepreneurs can be flexible with which financial management software they choose, and can even find one that's customizable to the unique needs of their business.
Not only should entrepreneurs hold off on buying a new house or car until their business is turning a profit, but they should minimize business spending until their company is established. Entrepreneurs can save on business expenditures by utilizing the services of a virtual office. For instance, a virtual office can help entrepreneurs avoid paying overhead costs associated with establishing or renting a full-time office space, and they'll have access to a professional team who can help them with administrative tasks so they can focus on expanding their new business.
Additionally, entrepreneurs can save cash by purchasing previously owned office equipment, hiring interns, and working from home. If you're concerned about where to start and what to cut, a financial analyst with experience working with small businesses can help you decide what the best route of action is for you and your new business.
Establish Business Credit
Even if you're a sole proprietor, any entrepreneur should obtain a Federal Employer Identification Number (EIN), even if you don't plan on hiring employees. This number acts like a social security number for your business, and enables you to start establishing credit in its name. Once you receive the number, you can open a bank account under your businesses' name, and eventually get a credit card that goes along with it. In doing so, you'll be better able to differentiate between personal and business spending.
Work with a Team of Financial Professionals
All business owners should have a trusted lawyer, a certified public accountant, and a financial planner on hand and with whom they can work with throughout the course of their business. Finding financial professionals you like and trust is important, as you'll be interacting with these individuals on a fairly frequent basis – especially when your business is in its beginning stages. Financial professionals are available to help, so be sure to take advantage of the unique set of resources each offers.