A contributor from the Association for Consulting Expertise advises a reader who’s looking to shore up finances before taking the big plunge as an entrepreneur.
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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: A full 73% of respondents to a recent Mainebiz poll said they have thought about starting their own business. There are a lot of considerations to the decision. 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. If you’ve been planning a business, you should have a clear idea of your projected cash flow, and, critically, when you expect your business to break even.
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.
Read more and learn about retirement saving while self-employed in Allison’s post on the ACE website: consultexpertise.com/blog/9284335.
Allison Bishop, a financial coach and CPA, is a member of the ACE board. She can be reached at allison@allisonbishop.com. Allison’s webinar for the Portland Regional Chamber’s “Growth Basics” seminar series is available for replay on the chamber website: youtu.be/Kpd-uHqNbcM.
