Starting your own business is a challenge in itself, and this is especially true for younger professionals who may not be as established in their careers. In order to get your new venture off the ground, be proactive about building a strong financial strategy from the start. Here are some factors to consider before taking that next step.
Business vs. Personal - It’s sound advice for anyone to keep their personal credit score in check, but aspiring business owners should pay special attention as it can affect interest rates on any future business lines of credit. If you decide to open a business credit card, which can take a burden off of your personal finances, set clear boundaries between the two and continue to track purchases on all accounts. This will help you stay organized and have a clearer overall financial picture.
Sourcing Funds - Start-ups should plan to raise more capital than what they think they’ll need. Common resources include angel investors and venture capitalists, which may prove to be a harder sell without a track record of proven success. In addition to reaching out to friends and family, entrepreneurs just starting out can also look into personal loans, which take personal credit scores and income into account, rather than length of business experience. You should consider that this will put your personal finances on the line, regardless if your venture fails or succeeds.
Retirement Planning - When you’re your own boss, you might not be eligible for conventional retirement accounts like a company-funded 401(k). Luckily, there are plenty of tax-advantaged alternatives that can get you on the right track, such as a Roth IRA, where contributions are made according to your current tax bracket instead of your retirement tax bracket, as in a traditional IRA. Self-employed individuals with no employees are eligible for a Solo 401(k) and can defer up to 100% of their earned income. Another option for sole proprietors is a SEP IRA, which allows investments up to 25% of net income (up to a cap) with minimal account fees.
To make sure your finances don’t take a backseat to business development, consult a financial expert about your short and long-term goals. North Dallas Bank & Trust Co. (Member FDIC) can help you build a MONEY-WISE financial strategy to take your start-up to the next level.