YOUR MONEY
Business startup requires time, good information
REBECCA WARREN is a certified financial planner professional and certified senior adviser in Mesa. She can be reached at (480) 357-8380 or by e-mail at Rebecca@ WarrenFinancialServices.com.
If you’ve ever fantasized about quitting your job and starting a business, you’re certainly not alone. However, it’s definitely not something to do on a whim — you’ll need time and good advice. A business startup requires parallel planning in advance for your business and personal finances. That’s because new business owners quickly find their business and personal finances are inextricably linked. Before you plan the business, plan your finances. Here are some basic steps to consider right now: • Get some advice first. You need two sets of financial advice when starting a business. The first involves the viability of your business concept. You should understand your business idea inside and out before you launch, and what your new company’s immediate and long-term cash needs will be. The second set of advice involves your own finances and how prepared you are for what will surely be a major lifestyle transition. Because new business owners frequently underestimate their new business’ expenses starting out, they can find themselves funding those business
needs out of pocket. That means less money for day-to-day living expenses as well as long-term planning for retirement. • Get rid of your debts. With the possible exception of mortgage debt, there’s very little “good debt” in the life of a businessperson. Start cutting back and erasing as much credit card and adjustable-rate debt from your personal life as possible. The credit crisis is making it tough for any business owner to borrow money at attractive rates. You’ll have the most flexibility when you owe as little as possible. • Work on your emergency fund. While it’s wise for everyone to have three to six months of cash set aside for basic living expenses in case they lose their job or face a medical emergency, emergency funds are particularly necessary for new business owners. Startups can be particularly expensive, and most businesses are not profitable from day one. • Start thinking about your legal business structure. Your personal financial situation and the kind of business you’re starting should determine the legal designation of your company. Before choosing a business structure, owners should reflect on their business in the context of their overall financial life and ask themselves a series of questions: • Is the business going to be your primary source of personal wealth and daily cash flow or is it a side business? • Do you expect the business to pay for your retirement? • Do you want it to provide other financial benefits? • Do you want to pass it on to family members or sell it to existing employees or outside buyers? The answers figure importantly into the decision, along with other key factors such as what type of business you’re starting, its risk factors, current tax laws and regulations such as workman’s compensation. Plan your health care and other basic benefits. When you’re working for yourself, you become your own human resources department, and chances are you won’t be able to match your old employer’s buying power. If you support a family with these benefits or if you have particular health concerns, you need to price the out-of-pocket costs of such benefits before starting your own company — depending on the business and the cost of those benefits, you might want to rethink your plans. Price disability coverage now. You want to qualify for the highest possible benefit, so apply now when it can be based on your present working salary. Disability coverage is critical for selfemployed people.
