Each year thousands of aspiring entrepreneurs embark on the journey to starting their own business. Feeling as if they have a perfect idea, they jump head first into their venture only to find after a short while that they weren’t prepared. Though there are a lot of factors that can play into the demise of a startup one of the top reasons is due to finances. It can take a while for a business to generate a profit and entrepreneurs must be able to handle that by taking the financial steps listed below.
Clean Up Your Credit
Until your small business has enough established credit your personal credit history will be reviewed to determine eligibility for certain products or services you might need. Therefore, it’s a good idea to clean up your credit before starting a business. Review your credit reports, dispute any inaccuracies, make timely payments, and negotiate ways to pay off negative credit accounts. You’ll need to maintain a positive record for several months to see significant improvements.
If you haven’t already, now is the time to save. As you know, you’ll need to support yourself until the business begins generating money. This could be several weeks, months, or even years. You’ll need to have several months of expenses in a savings account to tide you over. Do everything you can to increase your savings whether you have to cut back on personal spending, sell some things, or take on a little side gig like delivering groceries, mystery shopping, or ridesharing. If you have a regular job, it is recommended that you hold onto that job until you’ve either saved enough to last a few months or your business starts making money.
Research Funding Sources
There are several startup costs associated with running a small business. If you don’t have the financial means yourself to cover these costs, you should start researching your funding sources. For smaller expenses like licensing and registering your business or setting up a website, you can use a small personal loan. Larger costs like a property lease, inventory, insurance, or hiring staff might be best covered by crowdfunding, retirement savings, or some other financing option.
Before jumping into any business it is imperative to educate yourself. Learn about the marketplace to get an idea of what your business has the potential to earn each year. Find out about hidden costs like legal fees, insurance, certifications, permits, taxes, equipment and maintenance, and whatever else may be required to run your business. You want to make sure that you’ve chosen a business that has the potential to be lucrative and that won’t bankrupt you in the process.
Small businesses are popping up by the thousands every year. Unfortunately, many of them end up falling by the wayside within the first five years of establishment due to finances. If you have a great idea and want to start your own business, patience is definitely key. There is a significant financial undertaking that you need to be prepared for in order to ensure your startup succeeds. Educate yourself of the financial aspects of running a business and then take the proper steps like building a nest egg, cleaning up your credit, and finding funding resources so that you’re fully equipped to take your company to the next level.