Financial Tips before Starting Your Own Business
Eileen St. Pierre, The Everyday Financial Planner
On June 1st, I took the plunge and cut the cord. I was now on my own, running The Everyday Financial Planner. Yes, it’s been a rollercoaster ride. For those of you thinking of starting your own business, here are a few financial tips.
Build Cash Reserves
We’ve all been told to keep at least 3 to 6 months of living expenses in cash reserves. But this money is for personal expenses. What about business expenses? You should also keep 6 months of projected business expenses in a separate cash account – this money does not include startup funds.
Tips on Creating a Cash Reserve:
- Figure out how much you need to live on.
- If you are still working, start putting money aside before you quit.
- Create separate account for business savings.
- Do not make any big purchases or take on any debts right now.
- Do try to pay down credit cards or loans, particularly those with high interest rates. Take steps to boost your credit rating – this keeps you from taking money away from your business.
Create a Budget
Start by creating a monthly budget. You can set one up using a spreadsheet or you may want to consider finance software such as Quicken©. Your budget should be part of your overall business plan – you will need one in order to obtain financing.
- When forecasting expenses, think about fixed (ex. rent) vs. variable (ex. utilities, office supplies) expenses.
- For those of you operating a home-based business, the IRS approved a simplified home office deduction starting in 2013. You are allowed to deduct $5 per square foot – up to 300 square feet.
Maintaining Health Insurance Coverage
It can be tempting to go without health insurance. It’s expensive and the costs just keep going up. But one major health crisis could bankrupt you and your family and leave your dreams of business ownership in the dust.
If you need to purchase an individual policy, cost varies due to many factors such as:
- Amount of deductible
- Copay for office visits
- RX coverage
- Your sex, age, and pre-existing conditions
The new health insurance exchanges, known as The Marketplace, may be a good option. Starting in 2014, you may be eligible for premium tax credits and cost-sharing reductions if you purchase individual/family coverage through your state’s health insurance exchange.
- Small business owners with ≤ 50 employees may be eligible for tax credits through the Small Business Health Options Program (SHOP).
- My Health Care Reform page contains a lot of information on the new exchanges and SHOP.
There are many provisions of the Affordable Care Act (otherwise known as Obamacare) starting in 2014 so most health insurance plans will look a lot different then. You may want to consider using COBRA coverage from your previous employer or applying for short-term insurance until the Marketplace is up and running.
The Affordable Care Act does not affect COBRA. Under current law, you may be eligible for 18 months of COBRA coverage through your previous employer.
- You must have been enrolled in the employer’s heath plan and the health plan must continue to be in effect for active employees.
- You will have to pay 102% of the cost, but at least you will not have to worry about being turned down for coverage.
Starting your own business takes guts and a lot of self-confidence. I have always preferred to take the road less traveled. You’re never quite sure where it’s going to take you, but you have quite a story to tell once you get to the end.
Visit my Basic Financial Management page for more financial tips.