Being your own boss sounds like a huge perk but remember that it’s not always easy to have a successful organization. That means you’ll want to ensure you set yourself up to succeed by taking the right financial steps. Becoming an entrepreneur is a big step, but luckily there are a few things you can do to prepare.
Create an Emergency Fund
It’s important for everyone to create an emergency fund, but an entrepreneur will find them especially important. That’s because many businesses fail because they have issues with cash flow and don’t have it when necessary. With many companies, the demand is higher at specific times than others. For example, landscaping providers often have more work in the summer and fall than the middle of winter. That’s why you’ll need to have enough cash to help get through the tougher times and avoid cash flow issues.
As a business owner, you might decide to cut your pay at these leaner times to help your company through. So, you’ll want to have around three to six months of living expenses saved up. If you can, consider putting aside up to a year’s worth of expenses. To get your personal finances in order, you’ll want to create a budget and evaluate your accounts. A private lender can help you make the most of your finances with a loan to help pay off debt that might have high interest rates. Or the funds might allow you to put more into your savings account.
Create Separate Financial Accounts
While you might not think of personal finances as the most important aspect of your business, you’ll need to manage things well if you want to be successful. That means you should understand where your money comes from and what you are spending. If you don’t separate business and personal finances, it might be impossible to understand the cash flow of your company. Instead, create a separate account for your business funds. You can use that to cover busines expenses and receive funds form customers. That way, you can understand how your company is doing financially. It also helps if you get audited by the IRS and makes tax season much easier.
Consider How You’ll Cover Your Benefits
As a self-employed individual, you will no longer receive insurance from your employer. You’ll want to create a plan for paying for dental, health, and vision insurance so you know how to pay for team. You’ll also want to think about getting insurance for the business so you can protect it.You will also no longer have an employer to cover your retirement needs, meaning you won’t get a 401(k) plan or a pension. Still, you have some options open to you. As a self-employed individual, you can choose from accounts like Simple IRA, Roth IRA, and Solo 401(k). Each one has benefits, limits, and requirements, so make sure you do your research. If you have never been self-employed before, you’ll want to remember to set aside additional social security taxes – which will total a little over 12 percent.
