If you’re an entrepreneur, you know that starting a business can be financially difficult. Most small businesses, even sole proprietorships, require a significant investment of cash. You may also need to apply for credit under your own name before your company is able to secure a loan. Fortunately, there are several things you can do to minimize the financial strain when you are starting your company. Here are some helpful tips.
Make Sure You Have a Safety Net
Before you take the first steps into starting your business, it’s important to have a backup plan in case things don’t work out. Many new businesses don’t succeed, so having a financial safety net can help you recover quickly if your company fails or takes longer than anticipated to become self-sufficient. Generally, a savings account is a good option. While investment portfolios or bonds may offer greater returns, funds in a savings account are usually available for immediate withdrawal. Many financial advisors recommend having enough savings to cover three to six months of take-home income.
Consider Forming an LLC
Depending on the industry you work in, you may want to find a legal way to separate your company’s liability from your personal finances. Forming an LLC or another type of business entity can help protect your personal finances if your business is involved in an expensive legal transaction, such as a lawsuit. Most states have different requirements for forming an LLC, and there may be changes to your tax status as well. It’s usually best to consult with a lawyer or accountant to learn which legal situation may be best for your business.
Get the Most Out of Your Taxes
In many cases, being a small business owner, independent contractor, or freelancer can allow you to save some money on your taxes. While you will likely have to pay self-employment taxes as well as state sales taxes, you may be able to find numerous business-related deductions that can reduce your overall amount owed. For example, many small business owners can legally deduct mileage driven for business purposes, office equipment, and depreciation of company assets. Working with an accountant who has experience with small business taxes can be a good way to make sure you are getting the best refund.
Save Money on Personal Expenses
You may be able to invest more in your small business if you reduce your personal expenses. Saving more of your money every month can help take away some of the stress of starting your company. Along with reducing your spending on non-essential items, you can also try to find ways to lower your standard monthly bills. Try negotiating with your phone or internet provider, consolidating debt, and contacting a local insurance provider to find a better rate on your home and auto policies.
Starting your own business can lead to a life of financial freedom and the thrill of doing what you love for a living. However, the initial investment in your company can place a strain on your finances. To limit the financial stress when you’re starting your entrepreneurial journey, make sure you have a good amount of savings, claim the right tax deductions, and reduce your personal expenses.