As the newspapers keep on reminding us, more and more people are starting their own business. There can of course be umpteen reasons behind this; nowadays for example you don’t need the bricks and mortars establishment that you once did, and the internet has most certainly made things much easier.
Of course, while it is easier in some regards, let’s not forget the other side of the story. Something else that the media like to remind us is that a huge number of start-ups fail in their first years of operation. This can be a really scary time for the would-be entrepreneur; it means that they are walking a tight-rope and only the very best new businesses are going to succeed.
All of the above means that it is particularly important to get your own personal finances in order before taking the plunge. Through today’s article we will hone in on this in further detail, to help you along your way.
It’s not just about your current expenses
One of the biggest mistakes a lot of people make when it comes to starting their own business is to only think about their current expenses. Naturally, this relates to things like a mortgage and car loan, which are the bread and butter financials of life, so to speak.
However, as you get older, more expenses enter the picture. While it might not be the most pleasant topic in the world to speak about, paying for the cost of a funeral is one of these. It doesn’t stop there either, with elderly care being another that needs to be factored in.
If you spread the net further, the kids can present further expenses as well – even after they have flown the nest. This might be in the way of college fees, or it might be in relation to helping them get on the housing ladder. Either way, don’t judge your financial position by your current expenses.
You might have to compromise
On the subject of expenses, now might be the time to compromise. Sure, you might be a member of the most premium gym in the neighbourhood, but this might be one of those expenses that needs to be cut back as you bid to get into your own business. Let’s not forget that the days of your regular pay check coming in are long gone, now it’s a mystery and while the eventual aim is to be earning more than your current salary, there might be some months where this isn’t the case and you need to save to legislate for this.
Start your emergency fund
Next on the list is your emergency fund, and just how this also has to be given great consideration before you take the plunge with your own business. As we have already alluded to, when you start a business you are losing all of those guarantees that you have grown up with. It means that you are entering the world of the unknown, and this is where your emergency fund comes into play.
It might be a dip in the economy, or it might be that a new competitor comes around and temporarily steals all of your custom. The point we are trying to make is that businesses often engage in rollercoaster journeys, and this is where you need your emergency bank to sometimes come to your rescue.
A lot of people believe that the optimum level is six months’ worth of living expenses. Armed with this, you have a cushion if your business starts making losses, while it might also give you some leeway if you need to inject some capital to get it going. Of course, if you are making good profits, you can keep adding to this fund just to futureproof your lifestyle.
What is your current credit score?
Finally, let’s talk about your credit score. This is one of those “last resort” tips, as in truth you should never have to rely on your credit score.
However, if you are looking for expansion in the future, starting off with a good credit score is going to help you no-end in this regard. You’ll have access to better deals, and this will of course transform the fortunes of your business.
Good credit scores can take time to build up though, particularly if you have had trouble in the past. This is why it’s good to start before you have really got involved in your business.