Fledgling entrepreneurs stand on the edge of grand opportunities and great risk. The entrepreneur’s journey isn’t easy, especially when you’re just starting. Trust me, I’ve been there myself! For all the innovative ideas and big dreams, what entrepreneurs really need is financial direction.
This path is exhilarating and daunting all at once. Ensure you’re making the most of your chance: follow these financial tips!
6 Money Management Tips for Entrepreneurial Success
Tip #1 – Don’t rush to quit your day job.
Many people want to be entrepreneurs for the sake of being their own boss. Charting their own course. Carving out purpose and freedom. These aspirations are all well and good, but I want to encourage you not to quit your day job too soon. The last thing you want is to be left wondering how you’ll pay the bills at the end of the month. Before you strike out on your own, you need:
A proven, marketable idea that sells
A financial buffer (minimum three months’ worth)
Business revenue that exceeds your current income
A clear plan and direction
Ultimately, you need to know you and those dependent on your income can make it if you quit. It takes time for new businesses to get off the ground. Be prepared for lean times. Be patient. The more carefully you plan your exit, the better off you’ll be.
Tip #2 – Secure a source of passive income.
I don’t think I can adequately stress the importance of passive income in words alone. Entrepreneurship isn’t always predictable. Owning your own business comes with surprise expenses and income fluctuations that can be a great source of stress. Now, some streams of passive income you’ll see, like writing books or creating online courses, demand upfront time and know-how. These are all well and good, but not easy to do when you’re trying to get a new business off the ground.
I recommend investing in real estate or dividend-paying stocks. This extra cash flow can help you get through the lean years.
Tip #3 – Calculate start-up expenses.
Starting a new business is expensive. Licenses may be needed, and costs may be associated with registering your business (the cost varies by state and type of business structure). But additionally, you must consider core start-up expenses such as:
A professional workspace (i.e., home office, commercial office space, or storefront)
Inventory and storage
Insurance costs
Marketing, website, advertising, and branding materials
Vendors and professional services (accountants, lawyers, etc.)
Operating expenses
Your actual expenses will depend on what your business does, whether or not you hire employees and the services you provide. Selling physical products, for example, will come with production and inventory costs that aren’t there for businesses that offer services. I recommend consulting with an accountant so you get a complete, accurate picture of your start-up costs.
Tip #4 – Stay lean.
Avoid unnecessary debt or large overheads in the beginning. Opt for cost-effective solutions, such as outsourcing non-core functions, using cloud-based software, or renting equipment instead of buying. Most entrepreneurs work with limited resources in the beginning. Invest in what makes sense while mitigating costs where you can.
Tip #5 – Anticipate taxes.
The tax man comes for us all. Business taxes are a whole different ballgame than what a regular employee is used to. Even sole proprietors and freelancers must pay estimated income tax, including a “self-employment” tax. It’s basically adding 15.3% for Social Security and Medicare. It’s a much more active way of paying taxes. Because of this, I recommend (again) speaking with an accountant experienced with business taxes. You want to know what to expect and what new deductions are available.
Tip #6 – Build up a financial buffer.
The whole idea behind not rushing to quit your day job and securing passive income is to build up a financial safety net. Start-up expenses and ongoing costs are one thing, and the potential for the unexpected is another. Your preparedness is critical. This is particularly true before your new business brings in reliable, established income.
No matter the stage and age of your business, aim for at least 3 months of expenses. Some would recommend up to 6 months’ worth. It depends on your personal risk tolerance.
What’s the best financial advice you ever received? Share how it transformed your finances in the comments.