There are so many wonderful freedoms involved when you start your own business, and although it’s undeniably hard work, you have the ultimate satisfaction of knowing that all that hard work stands to profit you. The trade off, certainly initially, is that there’s much less stability. Irregular cashflow, uncertain profit and a shaky salary can make planning your personal finances an especially tricky topic for an entrepreneur. That risk can be quite daunting, but with a little planning, it is possible to minimise the worst of it and aim to create some kind of fiscal stability for yourself. Be proactive when it comes to assuring your financial arrangements, and your future self could well be thanking you…
Stick To A Budget
Many of us still don’t cover the basics by planning a personal budget. If you have an irregular income, plan it against the worst case scenario for a month. Understand exactly what expenses are essential – things like mortgage payments or rent – what are necessary but you have room to budget on – such as your food bill or electricity usage – and what is completely discretionary, such as a gym membership or any subscription services. Make it a monthly practice to seek cheaper alternatives to all monthly expenses, whether that means comparing energy suppliers or buying store-brand groceries. That way you know the bare minimum it takes to get by when you’re having an especially lean month – something that is fairly likely in a small business. Ensure that you save enough to cover tax as well and don’t get caught out when the self-assessment tax deadline rolls around.
Prioritise An Emergency Fund
Ideally, you won’t have left regular paid employment without first setting up an emergency fund, but sometimes these things do happen. Having worked out your bare minimum budget for each month, aim to save up at least three times that to keep you afloat if you have a bad run and sales drop or you lose a key client.
Insure Yourself And Your Business
Especially if you have a dependent family, insurance is something that you should never be tempted to skimp on. Make sure you are covered against things like public liability, and also with personal cover such as if you get a serious illness – with no employer funded sick pay, this is hugely important. Shop around for cover where possible or use specialist plans such as heartofenglandfuneralcare.co.uk to ensure that you and your family have your expenses covered in the event of the worst happening. Of course, no one likes to think about possibilities such as serious illness or even death, but without the cushion of working for a large firm and all the employee benefits this provides, you do need to consider your options in the face of less than pleasant circumstances.
Make Some Investments
As soon as you have your emergency fund in place, make your other savings work hard for you by setting up an investment portfolio. This doesn’t require megabucks – many online investment platforms let you start investing with minimal amounts. If you don’t have the headspace to keep up with individual stocks, a mutual fund is a great place to start – it’s a portfolio prepackaged by financial advisors and studies show the returns are generally just as good as stocks chosen individually by a broker. Simply log on, choose an amount to invest, select a risk profile and you’re away. This can keep the cash rolling in even if your business has a few leaner months.