Steps to Becoming a Financially Secure Small Business Owner

Steps to Becoming a Financially Secure Small Business Owner

Entrepreneurs focus on running a successful business. Driving the company to profitability is an all-consuming endeavor, and may lead some owners to neglect their personal financial stability in the process. Starting a business is a risk, but in an ideal scenario, you don’t want to risk your family’s future.

To safeguard your own financial health while building your business, take stock of your personal situation. With the right checks and balances, you can ensure you have a safety net. Planning and prudent spending in your professional and personal lives will give you some measure of security while sales ebb and flow.

1. Separate Personal and Business Finances

As an entrepreneur, you will invest your own money and time into the business. But to have a concrete grasp on the financial health of all aspects of your life, it’s vital to keep a separate accounting. Depending on the legal structure of your business, you may or may not have legal liability for business losses.

Having a personal and a business balance sheet, and separate bank accounts for each, is better for tax purposes. It also allows you to have a clear idea of your cash flow and how much you can afford to spend, at home and in the shop.

2. Determine Your Living Expenses

As an employee, you probably budgeted your living expenses based on your monthly income. Now that you are self-employed, your income — if you draw one at all — depends on the health of your business. Make an accurate list of your personal living expenses, so you know how much you have to earn to stay afloat.

Ideally, you’ll find areas where you can cut back. That way, you should have fewer back-of-your-mind worries about the high cost of living while you are building up your business.

3. Pay Yourself What You Need

If the business is self-sustaining, you should be able to draw a reasonable salary. There’s an entrepreneurial myth about putting everything you have into your business, but if you go into personal debt to do that, it may not be the best idea. If your enterprise can afford to pay you a normalized salary, take the money and use it wisely.

4. Be Sensible With Start-Up Costs

Whether you own an auto service shop, a construction company or another blue-collar business, equipment is expensive. If you are just getting on your feet, take some time to review your costs. Separate the “must-haves” from the “nice-to-haves,” and put the latter on a “future purchase” list. Being conservative in the early days can ensure your business is sustainable for the long term, and your own finances remain stable.

5. Get Professional Advice

Financial health is a very personal issue. Your individual circumstances will play a huge role in the choices that you make. By speaking with a financial advisor who understands small business, you can get a better grasp on your personal risks and opportunities. The fee you pay to see an advisor may be a wise investment if it keeps you on track financially.

Entrepreneurship is risky by nature, but it is difficult to come back from financial challenges. By remaining cautious but optimistic, you can make your small business a viable source of income for years to come.

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