Five Personal Finance Steps to Take Before Starting a Business September 17, 2015My BusinessOff

Think you’re ready to take the leap of faith as a business owner? Well before you decide to turn in that two week’s notice, it is probably a good idea to make sure that your finances are in order. Though the hope is that your business will excel, the truth of the matter is that you may struggle a bit in the first few years. As such, you’re going to want to make sure that you’re financially prepared to face the challenges that may lie ahead. Below are five personal finance moves you should consider making to get prepared.

1.  Check Your Credit History

What you may or may not know about starting a business is that in the beginning, your personal creditworthiness and the business’s creditworthiness are one in the same. Whether you’re looking to lease office space, take out a small business loan to afford startup costs, or looking to impress potential investors, your credit history will determine how far you get. So ladies, it’s not a bad idea to give your credit history a once over to see if there is anything that might come back to bite you later on.

2.  Record All Your Debts

Having too much debt on your hands personally can spill over into your professional finances. When your personal debt is really bad, you could end up using company finances to compensate for those debts. You also run the risk of running your business with the sole purpose of getting out of debt. This turns your passion into a chore which can hinder your business’s success.

As you’re looking through your credit history, you want to jot down any and all debts that are still lingering around. Whether they are in good standing, in collections, or inaccuracies, you want to write them all down so that you know exactly how much debt you’re dealing with.

3.  Come Up with a Repayment Plan

Whether your debts are in good standing or not it is a good idea to try and pay those off before going into business for yourself. Keep in mind that both investors and creditors will look to your personal finances to determine how trustworthy you are professional. Therefore, you don’t want to leave anything behind that could tarnish your reputation.

There are several ways you can go about repaying your debts. One method in particular that is fairly simple would be to get a grand total of your outstanding debts. Review your budget to determine how much money you have leftover to dedicate to your debts. Determine how long you’re willing to stay at your current job. Divide the amount of months you’re willing to stay by the amount of debt you have. This should give you a total number to pay each month. See if that number lines up with the money you have to spare from your budget. If it does, begin paying back the monthly amount you calculated. If you don’t have enough, you may need to consider earning more income on the side or staying at your job longer so that you can repay the debt.

Getting Help: In some instances, your debt can be out of control and start to ruin your life. If this is your case, reaching out to the correct financial assistance provider is the best choice. Creditrepair.com, a credit repair agency, has a testimonial video in which a consumer needed assistance in getting back on track financially. This just goes to show that we all need help and there are service providers out there dedicated to assisting you.

4.  Learn to Budget Effectively

A large part of running a business will be managing the finances appropriately. Though you could easily pay an accountant to manage your company finances, it is still beneficial if you know how to manage finances yourself. Needless to say, if you’re not tracking your spending and budgeting at home, you’re going to have a hard time doing this for your business. Therefore, review a few reputable resources online to learn how to budget effectively.

5.  Save at Least 3-6 Months of Income

Since you don’t know how successful your business will be, you need to be prepared for any difficult times financially. Experts recommend that you have a savings of at least three to six months of income before you quit your day job. Why? Well because then you have a nest egg available if things aren’t as financially successful as you predicted they would be. This will keep you from falling behind financially and ensure that you and your family can still maintain a decent quality of life.

I strongly advise you to follow each of the above mentioned tips before deciding to walk away from your day job. No matter how frustrating it may be, no matter how anxious you are to be on your own, if you’re not financially prepared personally, it will begin to affect you professionally. Getting your finances in order gives you peace of mind at home and allows you to chase your dreams without the added stress. So here’s to financial freedom and the success of your business!

Photo by Golden-Pixels | Shutterstock

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