5 Tips on How to Plan Finances as an Entrepreneur
Starting and owning a business is exciting, but it’s also risky because it’s new and, often, unstable. To keep new ventures afloat, it’s wise to have finances in order. In fact, being able to properly manage finances, both business and personal, is perhaps one of the most important steps to ensuring a successful, thriving business for many years to come. Check out the five tips below to find out how to plan finances as an entrepreneur.
1. Plan for the slow times
Many new businesses take some time to really get going and establish a steady flow of income. So in those early years, it’s smart to plan for times where money might be tight. Do this by making sure personal finances are stable enough that they can make up for any slow times the business might face. A good rule of thumb is to set aside enough money for essentials, like food, insurance, and housing expenses. Set aside enough for a few months (generally three to six months is best), just in case. Planning ahead allows breathing space for when business is slow, personal finances don’t have to take a hit either.
Don’t put all the eggs in one basket. Don’t be afraid to diversify by spreading funds out into other investments, or even side projects. It’s a great way to set up a backup or emergency fund in case the business gets slow or temporarily declines. Because believe it or not, most new businesses fail. Plan ahead, diversify.
3. Don’t mix business finances with personal finances
Keeping the business finances separate from personal finances helps keep the business legitimate, often allowing for additional tax breaks and write-offs. It also eliminates any liability on the personal side of things in case the business fails or hits a rough patch. But that’s not all, keeping finances separate keeps the business organized and makes managing taxes a lot easier and more efficient. It also makes things easier if the business ever has to file for bankruptcy or if selling the business ever becomes a topic of conversation.
4. Don’t spend more than the business earns
It may seem like common sense, but it’s essential that expenses stay below earnings. This is true when it comes to personal finances as well. Overspending makes it virtually impossible for the business to grow.
5. Get taxes prepared by a professional
When owning a business, there are many tax benefits that can be figured in when preparing to file taxes. Many people don’t know all of them, so it’s best to have taxes prepared by people who do — the professionals. Doing taxes for a business is so much more extensive than filing personal taxes, and it’s easy to make mistakes. So skip the do-it-yourself approach. This is one step that’s well worth the investment.
There are ways to make starting a business a little less scary, and it helps knowing how to properly plan and manage finances. After all, a business can’t thrive without money, so if the finances aren’t there or are unstable, chances are the business will be unstable, too. Plan ahead. Set aside emergency funds and diversify. With any luck, the business will turn out a success!
Elie Hirschfeld is a real estate developer from NYC.