Four Important Financial Decisions You Need to Make Before Starting a Business
Starting your own business is no easy feat. It takes a lot of physical, emotional and mental willpower to get it off the ground. More than anything, you also need to be financially capable of establishing and maintaining it for the long term.
Many new entrepreneurs find themselves shocked by the sheer financial requirements they need to deal with to make their businesses work. If you’re a budding business owner yourself, you need to make sure to take these things into consideration to be fully prepared for what you will face ahead.
The type of business structure that you adopt can have a significant impact to your enterprise in many ways, ranging from sourcing capital funds, distributing profit to tax breaks. As a solo entrepreneur, you become large responsible for every financial aspect, but you also get to enjoy the assets and profits. However, as your small business grows, it often makes sense to switch to a partnership or company structure as business growth also comes with more responsibilities. It’s important to ponder whether you want to start out as a solo trader, do it in partnership or dive into being a limited company.
2. Source of Capital
Business capital is another contentious issue that you need to sort out before launching your enterprise. Where will the capital come from – financing, crowdfunding or your own savings or a combination of them? With that said, would you like to slowly get the business off the ground while you’re employed full-time, or would you like to treat the business as your full-time job? It is essential to take a look at your finances and get in order before anything else.
3. Determining Your Overhead Expenses
Your overhead expenses will depend mostly on how much you can afford and willing to risk. How many employees do you need to start with, what are your equipment and how do you go about the location? In between employees’ salaries, items, equipment and software to office space, you certainly have a couple of things to consider when it comes to overheads. You need to decide whether you want to start small and scale up as you go, or go full-blast from the very start.
4. Business and Personal Accounts
Merging both your personal and business can be a pain down the road, so it’s important to decide early on separate accounts for both early on. Better yet, have a conversation with your finance adviser or accountant so you can have both aspects sorted out. Importantly, you want to make sure which business expenses are tax-deductible, helping you save some money and time come tax season.
Establishing and running a business is a long-term endeavor. Nobody wants to quit after three months since launching because they found out they don’t have enough funds to keep the business going. While it’s rewarding to own and run a business and call yourself an entrepreneur, there are also a couple of financial hurdles you need to overcome first. Be certain with your plan, but also have room for flexibility.