By Bennett Whitlock, CRPC®
For many, achieving the great American dream includes opening a business. If you have an idea for a company that you believe could be successful and want to pursue this dream, it is important to do your homework. There are important steps that every potential small business owner must take— they include:
- Identifying an opportunity in the market;
- Researching your customers and competition;
- Preparing a detailed business plan;
- Choosing a company structure that is right for you.
Create a financial strategy Becoming a small business owner should be considered a financial goal like any other. Develop a strategy for funding the company over time. A business that lacks a sound financial base may have a higher risk of failing. For greater success, estimate not only your startup costs, but the amount of money you’ll need to fund the company for the next three to five years.
When striking out on their own, many self-starters optimistically believe that the business will generate enough income to meet their needs and expectations, and even help them expand their lifestyle one day. While this is a worthy goal, be conservative in your initial projections. It isn’t unusual for a business to lose money in the early stages. Have sufficient cash in place to support your personal financial needs while you work to make the company profitable.
Where to find the money Establish a dedicated pool of savings to help finance your new venture. Set money aside from each paycheck. If it’s practical, consider establishing your business on a part-time basis before you quit your day job. This lets you test your ideas, make modifications and build a base of customers while also maintaining a stronger financial position. As you’re putting money away for your future business, make it a priority to continue saving for retirement and for your emergency fund.
If capital is required to finance your startup, you may need to borrow money. Be cautious as you consider your borrowing options. A good place to learn more about borrowing options is the Small Business Administration website (sba.gov). Also be careful about using personal assets (such as your home) as collateral to fund your business ambitions. Keep your personal and business assets separate.
Talk to your financial advisor to determine the best approach to build savings dedicated to your future business.
Bennett Whitlock, CRPC ®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services, Inc. Learn more at WhitlockWealth.com or call 703-492-7732.