Now more than ever, starting a small business provides a good source of income for those who still work a day job. But even a small entrepreneurial activity can cause a lot of changes to your life.
One of the best ways to mitigate the challenges in pursuing a side business is to make a financial plan for it. How can you do this? Here are four steps to take.
Work with a Financial Planner. A professional financial planner offers insight that few new business owners have on their own. A planner can help you maximize your savings strategies, define your goals, and figure out how to fund more than one priority at a time. A company or individual that offers fee based financial planning charges a flat fee rather than a percentage of your portfolio, so it's a great way to save money and have confidence in their recommendations.
Decide How to Fund the Business. Funding your new business can be tricky. Do you have the assets to self-fund your idea or enterprise? If not, can you wait while you save up the money? How will you save sufficient funds? Or do you want to try to attract investors, such as venture capital or crowdfunding opportunities? Work with your financial planner to decide how to deploy your assets, form timelines for raising the capital needed, and avoid over-leveraging yourself.
Keep the Business Separate. Very small and very new businesses tend to be run informally. There's often little division between the household income and expenses and the business's income and expenses. But if you want to create a sustainable second income, you need to know whether or not you're making any money — and how you can do better. The first step to learning this is to keep business expenses and income separate from everything else. This may take some time and work, but it will be worth in the long run.
Make a Business Plan. Just like you need a financial plan for your own personal assets and goals, you need one for the business. The business's financial plan should include from where and how much your initial capital is, how you will spend it to create income, and what timetables you are making to reach business goals. Your personal financial planner can help since they are already aware of your overall goals and situation.
By creating a workable plan both for your personal assets and your business assets, you can move forward as an entrepreneur with confidence.