This week, I’m continuing my 12 Steps to Transitioning From Employee to Entrepreneur series. Our steps so far:
Step 1: Decide what you want your life to look like
Step 2: Research your industry options
Step 3: Consult your family
Step 4: Pave the way for a smooth departure
Step 5 is all about getting your finances in order.
I do not agree with many entrepreneurial advisors who think it’s necessary to have all of your debts paid off before you launch your business. Don’t get me wrong … it’s best to be debt free whether or not you are an entrepreneur. But if everyone was required to be completely debt free before starting a business, there would be a lot fewer businesses in this country.
Even though you can have debt and still be successful in business, it is in your best interest to have as little debt as possible when you start, and to have a full, complete, and correct understanding of your financial situation without a business before you have one.
Here are 5 steps to getting your finances in order:
1. Automate your financial future.
Even if you are earmarking a small amount of every pay check for your future, do it. Set up an automated deposit from the account where your pay check is deposited into your savings accounts or funds. This way, you don’t have to worry about it, and you’ll be saving money without feeling deprived. As your business grows, you will eventually have opportunities to automate the use of business income to pay for things like health insurance. Hire a good accountant to help you with important activities such as this.
2. Find a good financial advisor.
Your local chamber of commerce will likely be filled with people who can help you manage your money. Interview different people and get recommendations from friends. You may have to pay a small fee (yes, it’s worth it) for advice, but most financial advisors earn a living on commissions from the products you buy. You may wish to consult with two or three so you can get different opinions on your particular situation.
3. Hire an accountant.
An accountant can help you organize your money and maximize your tax deductions. Share the advice you get from your financial advisor with your accountant so you can invest in ways that allow you to keep more of the money you make.
4. Pay off as much debt as you can.
Start with the smallest ones first to shorten your list, and then go from there. If you have debt, cut back on life’s little unnecessary treats (over priced coffee and designer handbags) so you can create a better life for yourself while maximizing your chances of success as an entrepreneur. The less debt you have, the fewer worries you have. The fewer worries you have, the more positive energy you can devote to your business.
5. Create a cushion of cash.
6. Buy everything you can in bulk.
Whether it’s your business or your personal life, the best way to buy anything is in bulk. From the office supplies, ingredients, and components used in your business to the paper towels you use in business to the paper towels you use in your home. In every case, you’ll pay less per unit, saving you both personal and business money. Over the life of your business, this will result in thousands if not hundreds of thousands of dollars saved, meaning more money for you and your business.
The bottom line here is to minimize debt and hold onto as much cash you can, and make doing both a life habit. Not only will this maximize the amount of cash you have on hand at any time, but it will also help give you the confidence you need to be successful through the years.
Follow this space for the next 7 weeks to continue your journey from employee to entrepreneur!
Next Installment: Step 6: Nail a Target Customer and a Product She Wants to Buy
I’ll be back with step 6 on March 21, as we continue your quest to transition from employee to entrepreneur. Meanwhile, share this post on your favorite social media outlets so your entrepreneurial friends don’t miss out!
