Being your own boss and taking control of your own professional destiny is a very appealing prospect for almost anybody. Many people start their own businesses successfully, and thanks to the wide availability of the internet, it’s becoming easier than ever to set up your own brand and work for yourself. Whether you want to sell products, offer a service or make your money some other way, there’s certainly no shortage of options available when it comes to starting out as an entrepreneur.
However, entrepreneurship does not come without its own set of challenges, and for many new business owners, these tend to be financial. Being able to understand and take charge of your personal finances is essential to business success. Although it’s important to keep the two separate you cannot get away from the fact that your personal and professional finances will be intertwined. Here are some key financial steps to take before you start your own business.
#1. Learn More:
It can be very worthwhile to take the time to invest in learning more about finances, helping you to get better control over both your personal and business money. As an entrepreneur, you might want to consider enrolling on a course to help you learn more about business finance, accounting, and bookkeeping. In addition, there are courses and learning programs that you can take to improve your personal financial management skills, which you may be interested in, such as an AAT qualification. An AAT qualification can help you learn more about managing business money, interpreting financial business jargon, and making a better financial investment as an entrepreneur.
#2. Separate Business and Personal Finances:
One of the most important financial steps to take when starting your own business is to separate your personal and business finances. It may be tempting to accept business payments into your personal account, but this can quickly get messy by making it more difficult for you to determine budgets, pay yourself and others, and keep track of what both you and your business are spending at the same time. In addition, using your personal account for business can make it very difficult, if not impossible to gain additional funding in the future, particularly if you are considering applying for a business loan from the bank. Set up a dedicated business account for all business finances and pay yourself from there into your personal account. This will make it much easier for you to track both aspects of your finances and minimize any confusion.
#3. Work on Your Credit Rating:
You might not realize it, but your personal credit rating can have an effect on the type of funding that your business can access. Chances are, if you go to the bank asking for a business loan for your new venture, you will be rejected if your credit rating is not up to scratch. This is especially true if you are starting a new business with no proven track financial record or records for success; in this case, the bank will solely look at your history of managing money and your credit rating to make the decision. If you’ve still got a lot of debt that you are paying off or have missed payments on your file, it’s unlikely that you will be accepted. Unless you’ve got a shining credit rating, it’s certainly worth taking the time to pay off existing debts, ensure all payments are made on time and dispute any mistakes on your file that could be harming your score.
#4. Pay off Existing Debt:
In addition to damaging your credit rating, entering into a new business venture when you’re in debt can cause unnecessary hardship and stress. Firstly, you’ll still need to remain committed to repaying your debts, even if your business isn’t earning as much profit as you’d like, particularly during the early stages. Because of this, it’s a wise idea to eliminate as much debt as possible before you start your new business venture. If you have several open lines of credit that need to be repaid, it may be worth looking into taking out a consolidation loan, which you can use to pay off all your debts and consolidate them into one single repayment. This will not only be easier for you to manage but it also usually works out cheaper due to the fact that you’re now only paying interest on one loan, rather than several.
#5. Consult a Professional:
Once you’ve got your personal finances in hand, you’ll need to think about the steps to take which will help you better manage your business finances too. Up until now, you’ve probably always paid tax via your employer, but as a business owner, you will be responsible for filling in your own tax returns and making sure that you have enough capital available to pay what you owe. It’s certainly worth consulting with an accountant or business financial advisor to help you better understand the process and be prepared for what you’ll need to do. Bear in mind that even simple tax mistakes can be very costly for both your business and yourself and you’ll be expected to cover any fees and fines from your personal pocket if your business is unable to.
#6. Consider Business Finance Automation:
No matter how small your business, you can certainly benefit from automating your accounting. There are several apps and tools available designed for complete beginners, which will make keeping track of books, determining how much tax you need to pay, and keeping all necessary financial records for your business much easier. Systems such as QuickBooks or Sage Accounting, for example, are easy to use, even for those with little to no accounting experience, making the whole task seem less daunting. Even if you’re working with a professional accountant, consider automation as they will certainly be grateful for it too.
#7. Minimize Your Financial Risks:
Last but not least, it’s important to look into the various applicable laws and legislation to ensure that your business is keeping financial risk to a minimum. When you are just starting out, the last thing that you want to happen is a costly lawsuit that will strip you of your business’ assets and worse. Take the time to educate yourself about laws that you will need to follow as a business owner, from protecting your customers and employees to ensuring that you’re not infringing on any trademarks or copyrights unknowingly. Make sure that you’re fully aware of all the rules regarding hiring and firing, tax filings, safety regulations, overtime, employing minors, and selling certain products.
Don’t forget to make sure that you have the right kind of insurance policies, too. You will likely need to ensure that you are covered by public liability insurance and if you’re trading from a physical location, make sure that it is also covered against natural disasters, fire, vandalism, and theft. If you’re hiring employees, you’ll need to ensure that they are also insured. It’s a good idea to contact an insurance agent who can advise you on the key insurance types that you will need when trading, and the best policies available.
Starting a business is much more than simply having enough money available to cover your start-up funds. Take these important financial considerations in mind to improve your chance of success.
