Money Never Sleeps: Big Money Tips for Small Business Leaders

Learn how to start and fund a small business without putting your personal finances at risk.

Starting a small business is an exciting prospect, but it also increases your risk for facing personal financial hardship. It can be tough to fund a business venture or strike out on your own with a self-owned business without solid financial backing. But there are steps that small business leaders and entrepreneurs can take to help a new business venture grow. And it doesn’t have to put your own personal finances at risk.

Are your finances ready for you to launch a new small business venture?

Before you start a small business or break out on your own for a self-owned business, you need to make sure your finances are ready. There are three key things you need to do to ensure your personal finances are shored up effectively before you begin your venture.

1. Evaluate your expenses and set a budget

The first step is to assess your expenses and set a personal budget. This means totaling up all of your bills, necessary expenses like groceries and gas, and discretionary expenses, which are the wants in your budget.

The goal is to get a handle on how much money you need each month to at least break even. You may have limited income once you start your business. So, it’s important to know what you’ll need to get by during the startup period.

Listing all your expenses will also be beneficial if money gets tight once you start your venture. If you need to cut back, you’ll be able to identify discretionary expenses that you can scale back. Doing things like limiting streaming services or cooking more at home instead of eating out can go a long way to reducing your monthly expenses so it’s easier to make ends meet.

2. Establish a financial safety net

In the initial phase of startup, you’ll want to invest revenue back into your business to help it stabilize and grow. This means you may not be earning income from your venture for at least the first six months to a year.

With that in mind, it’s a good idea to establish a larger emergency savings fund ahead of breaking out on your own. In normal circumstances for wage-earners, it’s recommended to have an emergency savings fund of 3-6 months of budgeted expenses. That means you have enough money to cover all your bills and necessary expenses for three to six months, even if you receive no income.

As a small business leader, you’ll want to extend your financial safety net. Ideally, it should cover about six to twelve months of budgeted expenses. This will give you ample financial padding while you’re getting your business up and running.

3. Minimize debt

Ahead of launching your business, you want to make sure you have your personal debt minimized as much as possible. This doesn’t necessarily mean you need to be completely debt-free. However, you should at least have debts like credit cards paid off.

First, this will help keep your monthly budgeted expenses low because it takes credit card bills off your plate. It also gives you an extra layer of financial padding in addition to your safety net in case expenses come up during the startup phase of your business. Finally, it will ensure your debt-to-income ratio is low. That way, you can get financing through personal loans if you don’t have any other options for your small business.