(Photo Credit: Taylor Leopold via Unsplash)
Financial independence is a double-edged sword. While it is empowering to be master of your own destiny, it is also a massive responsibility. If you get sick, there is no sick pay to cover your days off. The only retirement plan is the one you save up for. The Bureau of Labor Statistics publishes rather sobering charts showing how many years different businesses tend to survive. The moral of the story is to plan, prepare, and pay diligent attention to your business and your finances.
1. Preparation and Planning
Saving money has gotten harder as the American economy has suffered over recent years. However, the standard advice to new entrepreneurs to save up a cushion to get them through lean times remains relevant.
One way to prevent running out of resources is to spend as little as possible during the early years of your business. Eric T. Wagner at Forbes discusses the need to test the market before investing much money in a specific product or service. Poor planning or making the wrong move may kill a business.
If finances are too tight but your business idea has shown proven promise, consider applying for a loan or a grant from the Small Business Administration.
2. Keep Personal and Business Books Separate
If you are a sole proprietor, then from a legal standpoint, your business money is your money. This is no excuse for keeping sloppy books. Keep track of every business penny, and when you draw salary make that crystal clear. Do not borrow from your business accounts. Not only will you eventually get confused as to how your business is doing, but if you get audited it will get extremely messy.
Business bank accounts are usually more expensive than personal bank accounts. Some banks, however, will allow you to open the cheaper accounts with your business name on the account. Ask around, don't assume that because one bank won't help you no one will.
Separate accounts can be vital to maintaining crystal clear records.
3. Don't Forget Taxes
If you own a business, you are 100 percent responsible for all taxes owed. When you get paid, you must remember to set aside about one third of that for tax. If you fail to do this, your tax bill in April may cause you serious financial hardship.
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