When you’re getting ready to start a business, it’s easy to get caught up in the structuring of your new company and its finances. There are some things you should do for your personal finances as well during this time. Following are 4 important steps to take to get your personal finances ready for your journey as an entrepreneur.
Starting a business is stressful enough on its own. When you add personal financial stress to the equation, it can lead to desperation and poor decisions. To ensure that you’re making decisions that are in your business’s best interests, cut your personal debt as much as possible before getting started as an entrepreneur.
Build an Emergency Fund:
Most businesses aren’t profitable in their first few years. In some cases, not being profitable even means not being able to pay the owner’s salary on a regular basis. Having an emergency fund available to dip into when your business has cash flow issues ensures that your personal finances won’t be impacted by your company’s struggles. It also means you have more freedom to direct company cash flow to other areas in need.
Reduce Your Personal Expenses:
The life of an entrepreneur is a busy one, and it doesn’t leave a whole lot of time left for shopping. Take advantage of this time to lower your personal spending on discretionary purchases. But also, try to reduce your other expenses, like your living expenses. Doing so reduces your overall financial strain, making it easier for you to give your company time to get up and running.
Start a Retirement Account:
Entrepreneurs are their own employers. That means they have to provide their own benefits, like sick time and vacation pay. It also means they have to provide their own retirement benefits. You can design a retirement plan through your business, although you want to be careful of its funding requirements if you have employees. You can also set up a personal retirement account, such as an IRA. Even if you can’t contribute much each month, contributing something helps ensure that you will have some savings to rely on when you no longer want to work.
The more controlled you are about your personal finances, the better chance you have of making your business a success. Because without personal financial stress occupying your mind, you can pay a lot more attention to growing your new business.
Yorkville Advisors, LLC is a privately owned hedge fund sponsor.