You may wonder what your personal finances have to do with your ability to start a business. Most businesses take months and even years to gain their footing, so if you need to start drawing a salary immediately, you make it harder for the business to survive if you’re chipping away at your own debts. Many savvy founders pour their own money, in addition to any profits, back into the company, so it’s good to start a business with a clean slate.
Eliminate as Much Debt as Possible
Ideally, you will not have debt when you prepare to launch. Minimize the impact existing debt has on your finances by taking out a personal loan through a private lender. This allows you to roll all your debt into one, lower-interest loan. You can lower your monthly expenses, freeing up your money for other things, or you can pay more each month to pay off the debt more quickly. Regardless of the route you take, you will pay less in interest, saving money over the term of the loan.
Debt is a Distraction
Anyone who has launched a successful business knows that it takes time and dedication. It will be more than a 9 to 5 effort to build a successful company. You won’t be able to dedicate the time and energy needed if you are struggling to work another full-time job or losing sleep over how you will pay the bills.
Decide How You Will Meet Expenses
You know that drawing a salary is not the best way to help your company succeed, so what are the alternatives? The ideal situation is having enough money saved to cover your living expenses for at least 6 months. If that is unrealistic in your situation, aim for a safety net of some kind. Depending on what type of company you launch, you may be able to work part-time while building your business. Doing this is a compromise because you will lose some of the energy and focus required to create a successful launch. In most cases, it will be a better option than drawing a salary from a fledgling company.
Invest in Professional Help
You want to keep expenses down, but one of the areas you shouldn’t cut costs is when handling finances. Discuss your new business with an accountant to get an idea of how to structure the company and handle tax situations. In the early days, it may seem like profits may not be a concern, but you don’t want a surprise tax bill undoing your careful planning. An accountant familiar with small businesses can save you more money than you spend consulting with them.
Nothing is Guaranteed
No one launches a company expecting it to fail, but many new companies never make it past the first year. While you hope your preparation will protect you, if your business fails, you don’t want it to ruin your personal finances as well. By having your finances in order, you are in a solid position to bounce back if you need to look for new employment.