Entrepreneurship remains one of America's fondest dreams.
The ability to largely determine your own hours, pay, and destiny sounds like an interesting prospect.
However, this is usually not the reality of most start-ups at the start. With that freedom comes the responsibility to keep your personal finances afloat long enough for your business to thrive.
The ideal scenario is to launch your business from savings with the anticipation that, like most start-up businesses, it will not be immediately profitable to a large extent.
However, circumstances don't always allow for years of preparation in pursuit of a goal, and so there are a number of ways to derive a level of income from your start-up business that is sustainable for you and your business. br />
The first step to maximizing your personal income from a start-up business is to learn to live with less. Living without the level of guaranteed income that the most worthwhile traditional jobs offer can be something of a transition. While starting a business is an exciting time, it is also a very expensive process that leaves little room for out-of-pocket expenses until profits reach a consistently positive level.
As a business owner, you must maintain your business and pay any employees you may have before you take profits for yourself. Many startup owners turn to loans or credit to help them survive during this time, but this more often than not leads to debt that only delays profits and can spell the end of a business if the budget is ultimately unbalanced. A good way to build productive financial habits is to figure out your essential expenses in any given month, then set a limit on how much more than that figure you can spend in the month. It is extremely important that you keep a personal record of financial transactions as well as one for your business, using software such as Quickbooks or Peachtree and compatible business cheques. Never mixing business and pleasure is paramount, except of course for expenses like internet and phone service which might be considered work-related for the home business.
You don't have to pay yourself a high base salary to enjoy the positives of business ownership. As an entrepreneur, you have other compensation options that effectively increase your income without systematically leveraging your business revenue. A high-quality healthcare plan is a business expense with practical benefits. A system of bonuses and commissions incentivizes exceptional performance. Regular contributions to an IRA lower your taxable income and help you save for retirement. Sound decisions in this area benefit you and your business.
A long-term view of your business is key to surviving the early years when most businesses fail. The temptation to use profits to improve your lifestyle can be strong for many inexperienced entrepreneurs. Overpaying your own salary drains revenue that could help your business grow and play a central role in the collapse of an otherwise promising business.
In another concern, the IRS has successfully pursued legal action against business owners who violate their reasonable compensation guidelines. Your salary should be the bare minimum you can live on. Every dollar you pay yourself above what allows you to maintain a decent standard of living is one that could have been used to make your business more successful and therefore more profitable.
Staying aware of the long-term impact of your financial decisions regarding your start-up business is the difference between success and embarrassing failure.
There are more great tips for managing your debt and becoming financially responsible in this article that will show you how to Take back control of your finances with these 6 tips to reduce your debt.
Photo credit :Rain Bunny
