By Dr. Morissa Schwartz, owner of DrRissysWriting.com — a marketing and writing company ranked top PR and social company in NJ/NY.
I knew I wanted to start my own publishing company straight out of college. I came from a family of small business owners, and I knew this dream relied on me. So my choices were to go to the bank and ask for a loan to start my company or work hard and hustle to make it a reality.
Many young entrepreneurs find themselves in between these two scenarios. Either start with debt from day one or take the long road of hard work and sacrifice. I actually went to the bank as a recent grad, asked for a loan and was very politely laughed right out of the bank. But, of course, for this option to work, you’d need to prepare a detailed business plan, show relevant management and industry experience, have your personal credit and finances in order and be ready to offer collateral, among other things.
Regardless of how I started, I was left asking, “How will I earn a living?” It’s possible to start your business without a grasp on personal finance management; however, no one will recommend it.
Entrepreneurs have a golden opportunity to create a personal finance strategy that will enable them to pursue their passions, build a viable career and thrive in a healthy lifestyle and retirement. There are no hard and fast rules about doing this, and that’s kind of the beauty of it. The way forward is as varied and creative as you are. However, some basic guidelines will be helpful, starting with your personal finance strategy.
Master your budget.
Many people lack the proper financial literacy education essential to building long-term, sustainable wealth. A budget is a logical place to begin for anyone, but as a business owner, this is essential. If somehow you’ve gotten this far without a firm budget, today is the day. Start with what you already know: How much money do you make? How much money are you spending? Most beginning budgets follow a 50/30/20 model: 50% of your net income for needs, 30% for wants and 20% for savings.
For many entrepreneurs, this straightforward process can be easier said than done. Sometimes, income isn’t consistent or sufficient to cover all categories. Early on, you may not have a benefits package, meaning that health insurance is one more expense out of your take-home pay. Student loans are another factor for most entrepreneurs. Over 14 million Millennials have student loan debt eating away at whatever is left. And if you are like me, and a loan isn’t possible, you are left to budget your time, talents and finances.
Not only did I need the financial literacy to handle my basic expenses, but I also needed the executive functioning skills to budget my time and talent. There are many ways to gain the financial know-how to master your personal budget and master your start-up’s budget. Social media is the new mecca for young financial experts to give real-world advice and practical application.
Save and invest.
The words “savings” and “investments” might invoke images of old men sitting in leather chairs talking gibberish about the stock market. However, as an entrepreneur, you can’t sleep on these two critical steps. If you were raised without money savvy and a baseline for investing, you should seek out help here, because there is too much at stake to fly by the seat of your pants. If saving has always been a skill that has eluded you and money burns a hole in your pocket, you can be sure that running a business will only magnify this issue. It’s never too late to seek out the help of experts, as daunting as it seems, and keep from making these mistakes in your business.
Saving for yourself personally looks very different from saving in your company. In a recent Yahoo article, wealth management expert Richard Little advises to never just leave your cash in your checking or savings account. Instead, invest regularly to get into the habit of investing on a schedule. This rings even truer when it comes to investing because the strategies look almost entirely opposite. You may be consumed with the day-to-day operations of your business, but finding time to consult your accountant and start to ask questions is a great place to start. You’re busy, and that’s a given, but find an audiobook on investing basics or catch a podcast of some brilliant financial minds and turn treadmill time into education time.
Keep debt to a minimum.
It’s essential to keep your finger on the financial pulse of your company from day one, whether it’s your forte or not. “If your budget or spending is unorganized, it will be easy to accumulate debt quickly and get in over your head. Make an outline of all of your expenses, allocate whatever amount of money is necessary in order for you to operate, and adhere to the limits that you set yourself,” Howard Dvorkin, CPA and personal finance expert at Debt.com, tells Inc. So, learn to analyze your budget early on and be mindful of the little costs quietly bleeding money right out the door. This practice benefits your personal and business budget.
Consolidate debt whenever possible. Doing so keeps payments simple and often with the benefit of a lower interest rate. Snowballing debt is a great way to make headway fast when tackling debt. The less debt you have adding to your monthly expenses personally, the less pressure you put on your business in the beginning. The best way to keep your debt to a minimum is to take on only necessary debt.
Some of these steps might seem elementary. However, a little over half of all small businesses have a budget, and only one out of three households have a long-term financial plan. Having a strategy for your personal finances and your company’s finances is not just beneficial, but essential. For some, the way forward may be unclear. So take it back to the basics and master them.