Entrepreneurs: Prior to embarking on any new business venture, you need to make sure that your financial house is in order. Here’s a to-do list to help you do just that.
1. Clear up existing debt. Substantial debt and limited cash flow can hinder your business success. Reduce what you owe before launching your next project. To determine how much debt you need to pay off, figure out your debt-to-equity ratio. (Tip: If yours exceeds 80 percent, it’s time to re-evaluate your financial plan.)
2. Invest in liability insurance. One of the most important types of insurance for small businesses is a general business liability policy, which protects your company’s assets and pays for liability in any claims, such as medical expenses, breach of contract, errors and omissions, and more. The average cost of liability insurance for a sole proprietor ranges from $500 to $15,000 a year.
3. Make sure you have enough startup capital. This may seem like common sense, but lacking sufficient funding is one of the biggest traps that entrepreneurs get caught in. You need to consider all of the costs of doing business, such as taxes, licenses, and equipment and supplies, as well as a commercial lease, merchandise, and payroll. How much is enough? It depends. But, according to Forbes.com, if you raise 18 months’ worth of funding, you need to reach your goals within a year.
4. Leave room for error. It’s easy to miscalculate your projected sales or budgetary needs, so have a Plan B for covering routine and unexpected expenses. For example, maintain a business savings account of readily available cash — enough to cover basic or emergency needs — in case your gross income or total outlay falls short of your forecasts.
5. Obtain the proper licenses. The types of licenses and permits you’ll need depend on the type of business you’re establishing and the county in which your company is located. Some of the most common licenses and permits required include a business license, a county permit, a state license, a conditional-use permit, and a sign permit. Check with your local authorities and chamber of commerce to find out what’s required in your area.
6. Understand your tax obligations. Small-business owners should plan ahead to minimize the amount they pay in local, state, and federal taxes each year. You may want seek advice from a tax consultant who can help identify what your monthly tax bill will be, what deductions you can take advantage of, and how you should classify your business from the start.
7. Take a few basic business courses. One way to ensure your business starts off on the right foot is to educate yourself about the various aspects of running a successful enterprise. Enroll in courses related to accounting, management, business law, communications, and web design.
8. Hire a skilled, trustworthy accountant. Accountants can be expensive, but the cost is well worth it to keep your books in order and your budget on track. A reliable accountant will show you where your money is being allocated, as well as expose any weaknesses in your financial plan.