It started with a great idea: a product or service on which you’re convinced a successful entrepreneurial venture can be built. Now comes the tough part — actually planning and launching the business.
Along with the entrepreneurial spark, nurturing a start-up business from concept to commercial viability requires painstaking planning and a methodical approach to executing that plan. Here are some key strategic steps to put your new business on the road to prosperity:
- Get professional advice. Entrepreneurs who fund a start-up largely from their own pockets will find their business and personal finances inextricably linked. “Thus it’s vital early in the planning process to consult a tax/financial expert who can help sort through issues on both sides,” says FPA member Kevin M. Reardon, CFP®.
- Set a budget. Clearly understanding your new company’s immediate and long-term cash needs is “critical,” says Reardon, noting that business owners frequently underestimate start-up costs. His advice: tally up expected start-up costs, than add 30 percent for a realistic number.
- Prepare your personal finances. Once resolved to start a business, start paring down your personal debt. In a tight lending environment, having lower personal debt should increase access to business financing. Also, start building up your personal emergency fund. Having enough cash set aside to cover at least six months worth of basic living expenses is especially crucial for new business owners, says Reardon, since many businesses aren’t profitable at the outset.
- Fill the funding void. If you’re not planning to fund your start-up exclusively out-of-pocket, where will the additional money come from? A home equity loan/line of credit? A loan from a family member or bank? Since start-up business loans from banks are tougher to secure these days, it’s worth investigating special lending programs from the likes of the SBA and other state, local and federal agencies.
- Decide on a legal structure. Will your company be structured as an S or C corporation, Limited Liability Partnership (LLP) or Limited Liability Company (LLC)? Avoid sole proprietorships and general partnerships due to the unlimited liability associated with these entities. Given all the tax and financial considerations that come into play, it’s worth consulting with an attorney and/or tax expert for help answering that question.
- The insurance issue. “Besides the obvious health insurance, long-term disability insurance is also a must,” says Reardon. With health insurance, he recommends new business owners hedge their bets by taking the COBRA option from their previous employer’s plan for as long as possible (18 months max) before adopting their own plan.
- Retirement plan and other benefits. From a self-employed 401(k) to a SEP IRA and beyond, the options for structuring a retirement plan for yourself (and your employees, if you have, or plan to have, any) are numerous. Again, given the tax ramifications, it’s worth talking to a tax expert before you decide on one.