Starting Your Own Business? How to Prepare Financially [Actionable Tips]
Starting your own business is an exhilarating adventure, but it comes with risks. Not only are you required to find proper startup funding, but you also need to save up sufficient capital to cover your expenses before you turn a profit. Take your time to prepare for your business to ensure your leap into entrepreneurship is secure as well as realistic. Once you are sure that you are financially fit, you can maximize your chances of success. Here are some great financial planning tips for business owners to prepare for a business financially.
1. Consider keeping your personal and business banking accounts separately
Regardless of the type of business you own (whether you’re a sole proprietor or fully incorporated), you need to have a separate bank account for your business as well as personal funds. It is the most elementary financial advice for new business owners. With multiple accounts, you can easily analyze which payment is going where.
Handling your expenses would become much simpler with multiple accounts. You will not find it difficult to get details about an expense that you made a year ago. Also unfortunately if your income drops, you can easily check which expense to cut off. The best part is you won’t have to wonder if the payments were for personal expenses or business related expenses.
2. Cash flow management is key
What are the most common reasons for the failure of most of the startup these days? Most startups fail for various reasons, but the one that is far more common than others is simply running out of money. You need to be well-aware of where every single dollar is coming from and where every single dollar is going to. Cash flow management is vital to any business.
Also, if you don’t stay updated with your cash flow, you may put your business in a dangerous position. It doesn’t matter how great your business idea is, when you run out of money, you hit a brick wall. So it is always advised to establish a budget and stick to it.
3. Get a Certified Public Accountant
When you pay taxes from your paycheck, it is simple and hardly affects your bank balance. But all of that changes when you start your own business. You may feel like there are an infinite number of tax implications, and it is difficult to understand the benefits of each. Remember one thing that your taxes will never be as manageable as they once were, so the best way is to consult a professional.
Consider hiring an accountant who can give you tax planning advice, prepare your annual tax returns and offer other business-related advice. There will be no need for you to familiarize yourself with the complicated tax laws. Along with consulting your accountant, you can also contact the Inland Revenue Department for any important forms and instructions.
So, at least book an initial preliminary consultation with an accountant regarding how to benefit the most from your business and avoid tax pitfalls. This comes as an important finance advice for small businesses.
4. Build Your Credit
An average business requires a good funding to get off the ground. Building a good credit history is required and is always recommended as your personal credit history can affect your ability to secure a business loan. If you are satisfied with the prospect of using your home as collateral, you need to assess your home equity to check whether you qualify for a home equity line of credit or not.
Aspiring business owners can also count on alternative lending sources like angel investors, venture capital companies, government loans and even crowdfunding.
5. Contact Your Government
Once you have made up your mind to start a new business, make it a priority to contact the Inland Revenue Department and Company Registry to check out if there are any forms that you need to file. There may be various forms for different types of business. For instance, if you’re selling a product, you may need a vendor’s license as well as you need to register to collect and submit sales tax. If you have hired employees for your business, you’ll need to register to submit income taxes to the Inland Revenue Department. Also, you may need licenses from your area, city or town.
6. Consult an Insurance Agent
You likely already have homeowners or renters insurance to protect some of your largest personal assets. Once you also have a business, it’s prudent to protect the business assets as well. The easiest thing to do if you already have a good working relationship with an insurance agent, is to simply let them know your new situation. If you’re running a business from your home, for instance, at the very least you may need a rider to cover computer equipment used in your business. If your business involves inventory, you’ll probably want it covered by insurance paid by the business. If you have employees, you’ll also need workers compensation insurance and liability insurance.
7. Automate Your Business Accounting
It doesn’t matter whether your business is small or a big one, you can benefit from automating your accounting. There are various business accounting systems that are user-friendly and easy to use for non-accountants. With these, you can manage your business in a better way with the reports created by these software programs and your accountant will be satisfied!
8. Get proper information about the applicable laws
As a business owner, you’ll need to educate yourself about the laws that you’ll be expected to follow. These may include employment laws, Workers Compensation laws, Unemployment Insurance, etc. Don’t risk your business and your personal assets by being unaware of these important laws governing hiring and firing, tax filings, hours worked, overtime, employing minors, safety regulations, etc. To get your facts straight from the start, you may even require a consultation with a business attorney.
Aspiring entrepreneurs need to accept the financial realities that come along with the small business ownership. By doing your research about the costs and profits, and building up a proper plan leaving your day job, you can give your startup the best chance at succeeding.