A guest consultant advises a reader on what financial steps to take now in order to be ready for starting a business tomorrow.
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Q. I’ve been planning a business, and now I’m ready to start. How do I prepare myself financially?
ACE advises: Starting a business comes with a lot of considerations. If you have another job while you prepare yourself for entrepreneurship, you can take care of some important items while still collecting a paycheck.
Building up a cash cushion is critical to get you through those first months of getting your business off the ground. Make sure you have a good sense of what your personal monthly cash needs are and some idea of when your business will generate enough income to cover those expenses.
When your income fluctuates from month to month, it can be difficult to manage your personal finances. A simple way to handle this is to set up your finances so that you’re paying yourself a salary.
Figure out how much it costs you to live, and set up a regular transfer from your business account into your personal checking. As long as you make enough in the long run, you will gradually build up a cushion in your business account that you can dip into during slow times to keep your personal income smooth and predictable.
Once you’re making money, make sure that you’re putting enough aside every month to cover your tax liability. You might start with putting aside 25% to 30% of your gross income every month. Depending on your personal situation, the right number for you might be more or less than that.
Allison Bishop, a financial coach and certified public accountant, is a member of the ACE board and is based in Portland. She can be reached at allison@allisonbishop.com.