How To Prepare Financially To Start Your Business
I’m sure you’ve seen the promises:
“Start a business for $500 in 30 days.”
“Launch your multimillion-dollar product for $99.99.”
Depending on your product or service, it is possible to get your business off the ground without tearing a hole in your pocket. I’m well into my 5th year in business, with 2 of those years being full time, and I didn’t have a plan. I just had an idea.
MY ENTREPRENEURSHIP STORY
In January 2016, I was more than happy to keep working on my side hustle while working full time. Becoming a full-time entrepreneur wasn’t on my mind. My day job as a global collections analyst was paying the bills, and writing résumés was an extra bonus. However, my company had other plans.
It was announced that the company had been bought by another company and that layoffs would begin. Just when you think you have a plan, right? I was a part of the first round of layoffs, and since I had clients to keep me occupied, I took my packet from human resources and made my exit.
I had no plans to be a full-time entrepreneur. I thought I would ride out my unemployment and, right before my unemployment ended, begin my job search. Well, by the time it ended, I had decided to decline any offers that didn’t meet my needs. With no corporate job and no unemployment, I became a full-time entrepreneur.
Unfortunately, I didn’t have a financial plan, so I struggled like you wouldn’t believe. I was definitely driving the struggle bus for months. To help you avoid my mistake, I enlisted financial expert Bola Onada Sokunbi, of Clever Girl Finance, to give some finance tips to ensure that your business is set up for financial success, right from the start.
Niya: Many people think saving money is the only thing you have to do to launch or elevate a business. What else should we do?
Bola: The most important thing is to have a business plan, which is essentially your blueprint for what you are trying to accomplish with your business. It does not have to be 100 pages long, but it has to be clear and concise, outlining what your business is about, who you will be serving, how you plan to reach them, why your audience will want to use you, and how much it will cost to get going, amongst other things.
It’s also important to keep in mind that your business plan is a work in progress and likely to change as your business grows, so remember to update it often.
Niya: What are some ways people can start building business credit?
Bola: When it comes to building business credit, you’ll need to take the following steps:
1. Start by registering your business as a corporation or LLC, and then get an FEIN number (which is similar to a social security number but specific to business).
2. Once your business registration is in place, set up business bank accounts as well as a dedicated business phone number that’s listed in business directories.
3. Next, apply to the various credit bureaus to set up a business profile for your company.
4. Then, establish initial lines of credit with a business vendor or creditor that will make reports to the business bureaus (e.g. a credit card company or a lending company).
5. Finally, ensure that you are paying your creditors on time and establishing a credit history, keeping in mind that you want to develop the habit of paying your bills in full each month.
Niya: New business owners often have delusions of grandeur when it comes to running a business. How can a new business owner prepare financially for start-up, besides a having a budget?
Bola: Setting the right expectations for yourself and for the growth of your business is key. It takes hard work to build a business from scratch, and things might not always go according to plan or according to schedule.
Preparing financially should not just include a budget. It should include setting aside personal and business emergency funds for unplanned needs. Your financial plan should also include forecasts of your earnings, as well as how you intend to reach those earnings.
Niya: How can a new business owner set up a financial model they can stick to?
Bola: Before setting up a financial model, you’ll need to define how your business will be generating income and what recurring / operating expenses you’ll have. Once you have a solid revenue stream and expense outline in place, you’ll have the inputs for your financial model. This makes it much easier to forecast your business earnings and profitability.
Also, avoid overcomplicating things. If you are a solo entrepreneur, you don’t need to bog yourself down trying to figure out an elaborate financial model that covers every detail. Keep it simple and expand it as needed.
Niya: Who should be on your business’ financial dream team?
Bola: You definitely need to have a good business / tax accountant or bookkeeper, as well as a good business lawyer — at the very minimum. They will help advise you on the financial and legal aspects of running your business, which are critical to your success.
No matter the size of your business, it won’t survive or thrive without a financial plan. If you have the opportunity to start before you lose your job like I did, definitely do it! For more advice and tools to get your personal and business finances financially fit, check out CleverGirlFinance.com
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