Starting Your Own Business? How to Prepare Financially

Lauren Powell
PHOTO: The Everygirl

Starting your own business is an exciting adventure but it also comes with risks. Taking the time to prepare will ensure your leap into entrepreneurship is not only secure, but also realistic. Now, the money. Ensuring you are financially fit will certainly maximise your chances of success. Catherine Robson, the founder and CEO of award winning financial planning practice Affinity Private, outlines the key considerations so you’re primed financially and ready to turn that new business vision into a successful reality.

And then be your own #girlboss.

Being your own boss and making your own decisions is fantastic, but a financially successful business must be about more than getting away from a bad boss or having to catch public transport to work. Ideally, your business is founded on a solution to a problem you have identified—something people need and are not currently able to find on the market. You exponentially increase your chances of success if you find solutions which are fresh, innovative or delivered to a new niche market. Simon Sinek’s brilliant TED talk is a great place to start to get clarity on the real “why” of your business.

One of the best books about running a successful business is Michael Gerber’s The E-Myth Revisited. The central message is to ensure that you devote time, energy and focus on running your business and avoiding the temptation to spend all your time delivering your business’ products. Regardless of whether you have a copywriting business or a cafe, unless you focus on being an entrepreneur you will spend all your time making coffees or writing articles and will never create any value in your business.  Gerber points out that many business owners have really just bought themselves a job, effectively working for a wage, or in many cases, a much lesser wage you would receive as someone else’s employee.

Very few businesses are cash flow positive on day one, so it can be quite daunting to forego the regularity of a salary, not only financially, but mentally. The initial phase of business building can be hard work and it can be demoralising when there is no cash flowing in despite the long hours.

Set yourself a financial limit—have cash set aside or arrange access to a certain amount of credit and use this to fund your expenses while you focus on getting the business to be self-funding. Use this limit to be a pre-determined catalyst to make hard decisions. For example, if you have burned through the cash you have set aside to fund 12 months of operating cost and the business still doesn’t break even. Will you cut your losses and walk away or take on a partner or raise capital elsewhere? Thinking this out in advance maximises good decision making rather than in a crisis while feeling exhausted and overwhelmed. 

Perfect is the enemy of good and you can spend a long time planning and projecting rather than just getting out there, having a go and learning from your mistakes. Spend some time translating your vision into tangible goals about where you want to be by when. This should include a budget which outlines your specific financial objectives over a given 12 month period.

It’s then essential to find someone to keep you accountable to those goals. It might be a business coach, accountant, friend or family member.

Talk to successful business owners in both your own and other industries about what they have done successfully and what mistakes they have made. You will be amazed how much people are prepared to help you—most business owners are really proud of what they have achieved and are happy to share their stories.

Build a team of specialists to help—you can’t be an expert in everything. Depending on your business, this might be an accountant, lawyer, marketing, HR or recruitment consultants. Some of these will be near you, but don’t be afraid to find expertise from across the globe. There are great sites which bring expertise to you, such as Upwork, Elance and Fiverr. Not only can this be a cost effective solution but also give you the freedom to find the right fit for exactly the job you need right now.

The sooner you begin to see and treat your business as separate from you personally, the more successful you will be. Many people wrongly think that one of the perks of running your own business is an opportunity to make their personal expenses tax deductible. Not only is this against the law, but it really limits the potential success of your enterprise.  

From day one have a separate bank account and credit card for the business so that you are easily able to keep track of what comes in and out and formally document money you personally lend into the business.

If you want your business to be more than a hobby, it is essential to keep track of your income and expenses yourself and not just rely on an accountant. There are great accounting programs like MYOB, Xero and Quicken which are easy to use and once you get into the regular discipline of entering or reconciling transactions, it will keep you up to date with how the business is performing.

There are never enough hours in the day to do everything you want to do to keep your business performing well. Making sure your personal finances are in good shape before you kick off is a great way to start with confidence, and also minimise future distractions. Get rid of credit card debt and personal loans and maintain a maximum of one personal credit card with a conservative limit. Consolidate all your super into one fund and be clear on what your personal living costs are. If you have a mortgage, consider fixing an interest rate for the first couple of years to give you certainty about your outgoings.

Have you started your own company? What’s your financial advice? Share with us in the comments below!

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