By Contributing Author
The volatile economy and shaky stock market are just two reasons for a surge of interest in startup companies. Working adults are choosing to start small businesses as a way to offset the effects of inflation, and launching a new company is one of the best ways to develop a reliable second stream of income. First, it’s critical to get your financial house in order, and that means reviewing monthly budgets and taking care of many other details.
If you want to maximize the chances that a new business will be successful in the long term, step one is to rework your personal budget to eliminate waste. In addition to refinancing student loans as a way to free up working capital, it’s also wise to create a two-year financial plan for the organization, establish credit in the name of the new company, avoid the temptation to borrow against your home, leave IRAs alone, and improve personal credit scores. There’s a lot to do, but the time to begin is now. Here are pertinent details about each step of the process.
Please help us out :
Will you offer us a hand? Every gift, regardless of size, fuels our future.
Your critical contribution enables us to maintain our independence from shareholders or wealthy owners, allowing us to keep up reporting without bias. It means we can continue to make Jewish Business News available to everyone.
You can support us for as little as $1 via PayPal at [email protected].
Thank you.
Rework Your Personal Budget
The whole point of revamping personal budgets is to find places where waste can be cut, and expenses minimized. There are several efficient ways to approach this dilemma. For starters, track all your spending, every dollar of it, for one month. Pay close attention to how much goes toward completely unnecessary items like drive-thru coffee and fast-food purchases, convenience store sweets, tobacco items, excessive dining out, and other budgetary leaks that can be eliminated.
Refinance Student Loans
If you want to chop a significant chunk of expenses from the monthly budget, consider refinancing education debt as a way to get a more favorable loan arrangement. Those who refinance student loans with NaviRefi can gain access to more than just lower monthly payments on their college loans. They also get the chance to choose more suitable repayment periods, better interest rates, and generally more reasonable conditions overall. One of the primary advantages of refinancing is that you end up with a brand-new loan, along with the chance to restructure it in several ways that are more conducive to the financial needs of a business owner. In fact, the key to surviving as an entrepreneur is to optimize your personal finances before delving into the world of owning a company and running it on your own.
Make a 2-Year Profit-and-Loss Projection
After redoing your personal side of the budgetary ledger, in an effort to avoid entrepreneurship mistakes, focus like a laser beam on making some educated guesses and estimates about how the business might perform for two full years into the future. Use current data you’ve come up with on your own as well as anything you can find on competitors. Then, take a stab at creating a P&L (profit and loss) statement that goes 24 months out. Be honest and attempt to include every conceivable expense as well as conservative income estimates.
Establish Business Credit
There are a couple of reliable hacks for building up a credit rating for your company. First, open two accounts in the business’s name with local banks: one for savings and one for checking. If your favorite bank offers secured business-based credit cards, consider applying for one as long as the initial deposit amount is reasonable. Use the accounts and the card regularly so that the activity reaches the credit bureaus. Next, negotiate with one or more vendors who are willing to give you a small line of short-term credit. The best candidates for these arrangements are vendors you deal with every week or month and who know you. Even a limited credit line can help your organization build up a history with the major reporting bureaus. Within a year, the bank accounts, secured card, and vendor line of credit can work wonders toward putting your company on the financial map.
Don’t Borrow Against Your Home or Raid IRAs
Don’t fall into the trap of relying on built-up equity in your home as a way of financing a startup. In general, if you have exhausted every other source of funds and still don’t have enough to get the company off the ground, it’s time to go back to the drawing board. The main argument against using residential equity for a startup is that if the company fails, your basic needs are at risk. IRAs, or individual retirement arrangements, are a different matter.
While it’s never a good idea to raid an IRA by pulling money out of it to bootstrap a business, there are other ways to gain access to the money. Some entrepreneurs simply reduce their annual contribution to IRAs and reallocate the funds to their new companies. Of course, you should only consider this tactic as a last line of funding. However, temporarily decreasing retirement contributions are one option for people who want to tap all their options.
