Starting your own business? Here are the golden rules of handling your finances…
Handling your finances as a first-time entrepreneur? Read on for some tips from our Money Muse, Lorraine Donegan on where to start and what to watch out for.
So you’ve got the great business idea, the drive, the enthusiasm… and all those butterflies in your stomach screaming, “Just do it!” But wait, what about the money side of things? What are the “golden rules” of money as a first-time entrepreneur? Here are my top six:
1 Safety (net) first
If possible, try to get the business started before you leave your current employment, developing it over evenings and weekends until you are certain it will work. Save like crazy and have a financial safety net in place, so that when you finally go it alone, you have enough saved to cover all your personal and business expenses for at least six months. Look at your bank statements to get an idea of your personal spend and develop a business plan that outlines every possible cost associated to the new business.
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2 Priorities – it’s all about the money
Naturally, your number one focus should be on the delivery of a first-class product or service, but never neglect the ebb and flow of your company finances. Be absolutely diligent about keeping track of expenses, cashflow and budgets. There are lots of great software packages out there to help with this, or you could just start with Excel. Always have a contingency amount (I’d recommend at least €1,000, but this depends on your business) set aside for the unexpected. Allocate a third of your income to cover taxes and separate your personal and business accounts.
3 Find a good accountant
You’re going to need a good accountant, so take the time to find one that is local to you, is upfront about fees, and makes you feel comfortable about their capacity to deliver the service level you need. Once you’ve made your choice, schedule regular update meetings so that you’re always aware of your current financial situation and can be advised on tax saving ideas, payment deadlines, income protection, etc. A great accountant will also be fully up to speed on what the business can pay for, things like travel expenses and entertainment expenses, so always keep those conversations current.
4 Sole or limited?
Should you be a sole trader or a limited company? I always counsel clients to choose “limited” because you can pay tax as you go and back date pension contributions for the years you hadn’t cashflow to invest.
5 Don’t neglect yourself
In my experience, the self-employed get so caught up in the needs of their business that they forget to factor in their future financial wellbeing. My advice is that as soon as your business starts making money, you should treat your pension like an overhead that must be paid, just like stock, utilities, rent, etc. That way, you form the habit early and you’re looking after your future.
In addition, seriously think about protecting your income. There are some excellent tax deductible policies out there that give you an income should you be unable to work due accident, illness or sickness. Some plans can pay out after one day.
6 Believe in yourself and charge accordingly!
Finally, don’t be meek about your value! At the end of the day, you’re starting this entrepreneurial journey because you want more for yourself – more of a challenge, more diversity, more freedom and more money! So don’t be shy about charging a price that reflects the value you deliver.
Lorraine Donegan, aka the Money Muse, is a CEO and founder at Donegan Financial Services. If you’d like to ask any specific questions about any finance-related topic, email [email protected]
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