Embarking on the journey of entrepreneurship brings a multitude of financial aspects to consider. To help you navigate this crucial phase, here’s a straightforward checklist to ensure your financial foundation is set.
When I launched my digital content marketing agency three years ago, I quickly realized I was stepping into uncharted territory. My background as a journalist didn't prepare me for the financial intricacies of running a business. I learned on the go, facing challenges head-on. Fortunately, with sufficient savings, I managed to weather the ups and downs of client management and other unexpected costs. Reflecting on my journey, I now wish I had a financial checklist like this one to guide me.
Initially, managing your finances might seem intimidating, but gaining control over your financial situation is a vital starting point. As Donald Williams Jr., a seasoned accountant and consultant, points out, you'll need to oversee various aspects like taxes, business licenses, office space leasing, software and hardware investments, marketing, and possibly even inventory and staffing. It’s a lot to juggle!
Feeling overwhelmed? With the right approach, you can get started promptly. Here’s what you should check off your list:
Assess Your Monthly Expenses
While it may appear to be a simple budgeting task, understanding your monthly expenses is crucial. Without this knowledge, it’s challenging to determine how much you can invest in your business without significant revenue. According to Shea Keats, a founding advisor at Breakaway Bookkeeping & Advising, establishing a budget is the first step you should take.
When drafting your budget, include major recurring costs such as rent, utilities, insurance, car payments, 401(k), and student loans, along with smaller monthly subscriptions like streaming services or gym memberships. You might find opportunities to cut back on non-essentials to free up funds for your business. Finally, consider your variable expenses, including groceries, dining out, and shopping.
Create Ideal and Minimum Budget Plans
With a clear understanding of your monthly spending, you can establish two essential budgets. First, answer this crucial question: “What do you need to earn monthly to achieve your desired salary?” This helps you define your ideal budget, which encompasses both essential and discretionary spending—your target for the lifestyle you aspire to maintain. But don’t stop there.
Next, Shea advises crafting a bare-bones budget. “This represents your minimum necessary spending. Aim to avoid extravagance but cut out most non-essentials,” she explains.
Build Personal and Business Emergency Funds
While it’s tough to think about worst-case scenarios, having a backup plan is essential for entrepreneurs. Tae Lee, CEO of Never Go Broke, Inc, emphasizes the importance of maintaining an emergency fund to cover potential setbacks during your business's early days. Aim to save three to five months’ worth of expenses, or more if feasible. “Profitability often takes time,” she notes, advising patience as you establish cash flow.
Track Your Spending from Day One
With your budgets in place, monitoring every expense is critical. Jess Kennedy, co-founder and COO of Beeline, stresses the importance of knowing your startup costs and ongoing expenses. “Understanding what it costs to operate and how much you need to earn is vital to avoid financial pitfalls later,” she warns. Failing to budget for taxes or losing a major client could jeopardize your finances.
Understand Your Risk Tolerance
Starting a business requires bravery and a willingness to embrace uncertainty. Suzy Holman, founder of Jovi, reminds aspiring entrepreneurs to identify their comfort with risk. “Every entrepreneur has questioned their decision to start a business at some point. Embrace the challenges, plan diligently, and don’t let setbacks discourage you,” she advises.
Seek Professional Guidance
Engaging with experts in areas where you may lack expertise can significantly benefit your business. Whether you excel in writing but struggle with numbers, or you're a marketing whiz but unsure about insurance, consulting professionals can provide valuable insights. Kennedy recommends seeking advice on regulations and financial strategies to ensure you’re well-prepared.
Properly Structure Your Business and Separate Finances
When you choose to incorporate as an LLC, Inc., or S-Corp, open a dedicated business bank account. Keeping your personal and business finances distinct simplifies tax preparation and deduction calculations, according to financial coach Jernessa Jones. “Investing in user-friendly accounting software can streamline your financial management. If this feels overwhelming, consider hiring an accountant to keep things organized and compliant,” she suggests.
Establish and Monitor Your Goals
Finally, if you’re transitioning from employment to focus on your business, set SMART goals: specific, measurable, attainable, relevant, and time-bound. This framework enables you to assess progress, pivot when necessary, and most importantly, persevere.
